Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of Shares of ETFS Palladium Trust, 59283-59292 [E9-27494]

Download as PDF Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) By order approve such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: mstockstill on DSKH9S0YB1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. SR–Phlx–2009–84 on the subject line. those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–Phlx– 2009–84 and should be submitted on or before December 8, 2009. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–27467 Filed 11–16–09; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60971; File No. SR– NYSEArca–2009–94] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of Shares of ETFS Palladium Trust November 9, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on October 20, 2009, NYSE Arca, Inc. (‘‘NYSE Paper Comments Arca’’ or ‘‘Exchange’’) filed with the • Send paper comments in triplicate Securities and Exchange Commission to Elizabeth M. Murphy, Secretary, (‘‘Commission’’) the proposed rule Securities and Exchange Commission, change as described in Items I, II, and 100 F Street, NE., Washington, DC III below, which Items have been 20549–1090. prepared by the self-regulatory All submissions should refer to File organization. The Commission is Number SR–Phlx–2009–84. This file publishing this notice to solicit number should be included on the comments on the proposed rule change subject line if e-mail is used. To help the from interested persons. Commission process and review your I. Self-Regulatory Organization’s comments more efficiently, please use only one method. The Commission will Statement of the Terms of Substance of post all comments on the Commission’s the Proposed Rule Change Internet Web site (https://www.sec.gov/ NYSE Arca, through its wholly-owned rules/sro.shtml). Copies of the subsidiary NYSE Arca Equities, Inc. submission, all subsequent (‘‘NYSE Arca Equities’’), proposes to list amendments, all written statements and trade shares of the ETFS Palladium with respect to the proposed rule Trust (the ‘‘Trust’’) pursuant to NYSE change that are filed with the Arca Equities Rule 8.201. The text of the Commission, and all written communications relating to the 15 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). proposed rule change between the 2 17 CFR 240.19b–4. Commission and any person, other than VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 PO 00000 Frm 00171 Fmt 4703 Sfmt 4703 59283 proposed rule change is available on the Exchange’s Web site at https:// www.nyse.com, at the Exchange’s principal office and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to list and trade ETFS Palladium Shares (‘‘Shares’’) of the Trust under NYSE Arca Equities Rule 8.201. Under NYSE Arca Equities Rule 8.201, the Exchange may propose to list and/or trade pursuant to unlisted trading privileges (‘‘UTP’’) ‘‘Commodity-Based Trust Shares.’’ 3 The Commission has previously approved listing on the Exchange under NYSE Arca Equities Rule 8.201 of other issues of Commodity-Based Trust Shares. The Commission has approved listing on the Exchange of the streetTRACKS Gold Trust and iShares COMEX Gold Trust.4 Prior to their listing on the Exchange, the Commission approved listing of the streetTRACKS Gold Trust on the New York Stock Exchange (‘‘NYSE’’) and listing of iShares COMEX Gold Trust on the American Stock Exchange LLC (now known as ‘‘NYSE Amex LLC’’).5 In 3 Commodity-Based Trust Shares are securities issued by a trust that represent investors’ discrete identifiable and undivided beneficial ownership interest in the commodities deposited into the Trust. 4 See Securities Exchange Act Release No. 56224 (August 8, 2007), 72 FR 45850 (August 15, 2007) (SR–NYSEArca–2007–76) (approving listing on the Exchange of the streetTRACKS Gold Trust); Securities Exchange Act Release No. 56041 (July 11, 2007), 72 FR 39114 (July 17, 2007) (SR–NYSEArca– 2007–43) (order approving listing on the Exchange of iShares COMEX Gold Trust). 5 See Securities Exchange Act Release No. 50603 (October 28, 2004), 69 FR 64614 (November 5, 2004) (SR–NYSE–2004–22) (order approving listing of streetTRACKS Gold Trust on NYSE); Securities Exchange Act Release No. 51058 (January 19, 2005), 70 FR 3749 (January 26, 2005) (SR–Amex–2004–38) (order approving listing of iShares COMEX Gold Trust on the American Stock Exchange LLC). E:\FR\FM\17NON1.SGM 17NON1 59284 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES addition, the Commission has approved trading of the streetTRACKS Gold Trust and iShares Silver Trust on the Exchange pursuant to UTP.6 The Commission also has approved listing of the iShares Silver Trust on the Exchange 7 and, previously, listing of the iShares Silver Trust on the American Stock Exchange LLC.8 The Trust will issue Shares which represent units of fractional undivided beneficial interest in and ownership of the Trust. The investment objective of the Trust is for the Shares to reflect the performance of the price of palladium, less the expenses of the Trust’s operations.9 ETFS Services USA LLC is the sponsor of the Trust (‘‘Sponsor’’), The Bank of New York Mellon is the trustee of the Trust (‘‘Trustee’’) 10, and HSBC Bank USA, N.A. is the custodian of the Trust (‘‘Custodian’’).11 6 See Securities Exchange Act Release Nos. 53520 (March 20, 2006), 71 FR 14977 (March 24, 2006) (SR–PCX–2005–117) (approving trading on the Exchange pursuant to UTP of the iShares Silver Trust); 51245 (February 23, 2005), 70 FR 10731 (March 4, 2005) (SR–PCX–2004–117) (approving trading on the Exchange of the streetTRACKS Gold Trust pursuant to UTP). 7 See Securities Exchange Act Release Nos. 58956 (November 14, 2008), 73 FR 71074 (November 24, 2008) (SR–NYSEArca–2008–124) (approving listing on the Exchange of the iShares Silver Trust)). 8 See Securities Exchange Act Release No. 53521 (March 20, 2006), 71 FR 14967 (March 24, 2006) (SR–Amex–2005–72) (approving listing on the American Stock Exchange LLC of the iShares Silver Trust). 9 See Amendment No. 2 to the Registration Statement for the ETFS Palladium Trust on Form S–1, filed with the Commission on October 20, 2009 (No. 333–15830) (‘‘Registration Statement’’). The descriptions of the Trust, the Shares and the palladium market contained herein are based on the Registration Statement. 10 The Trustee is generally responsible for the day-to-day administration of the Trust, including keeping the Trust’s operational records. The Trustee’s principal responsibilities include (1) transferring the Trust’s palladium as needed to pay the Sponsor’s Fee in palladium (palladium transfers are expected to occur approximately monthly in the ordinary course), (2) valuing the Trust’s palladium and calculating the NAV of the Trust and the NAV per Share, (3) receiving and processing orders from Authorized Participants to create and redeem Baskets and coordinating the processing of such orders with the Custodian and DTC, (4) selling the Trust’s palladium as needed to pay any extraordinary Trust expenses that are not assumed by the Sponsor, (5) when appropriate, making distributions of cash or other property to Shareholders, and (6) receiving and reviewing reports from or on the Custodian’s custody of and transactions in the Trust’s palladium. 11 The Custodian is responsible for safekeeping for the Trust palladium deposited with it by Authorized Participants in connection with the creation of Baskets. The Custodian is also responsible for selecting the Zurich Sub-Custodians and its other direct sub-custodians, if any. The Custodian facilitates the transfer of palladium in and out of the Trust through the unallocated palladium accounts it will maintain for each Authorized Participant and the unallocated and allocated palladium accounts it will maintain for the Trust. The Custodian is responsible for VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 The Exchange represents that the Shares satisfy the requirements of NYSE Arca Equities Rule 8.201 and thereby qualify for listing on the Exchange.12 The investment objective of the Trust is for the Shares to reflect the performance of the price of physical palladium, less the Trust’s expenses. The Shares are intended to constitute a simple and cost-effective means of making an investment similar to an investment in palladium. An investment in physical palladium requires expensive and sometimes complicated arrangements in connection with the assay, transportation, warehousing and insurance of the metal. Although the Shares will not be the exact equivalent of an investment in palladium, they provide investors with an alternative that allows a level of participation in the palladium market through the securities market. Platinum Group Metals Platinum and palladium are the two best known metals of the six platinum group metals (PGMs). Platinum and palladium have the greatest economic importance and are found in the largest quantities. The other four—iridium, rhodium, ruthenium and osmium—are produced only as co-products of platinum and palladium. PGMs are found primarily in South Africa and Russia. Russia is the largest producer of palladium and most production is concentrated in the Norilsk region. South Africa is the world’s leading platinum producer and the second largest palladium producer. All of South Africa’s production is sourced from the Bushveld Igneous Complex, which hosts the world’s largest resource of PGMs. Together, South Africa and Russia accounted for 78% of total platinum group metals supply in 2008. Suppliers of Palladium The main supplier of palladium is Russia. However, its contribution has fallen from 65% in 1999 to 44% of total supply in 2008. South Africa is the second largest source of supply, accounting for 29% of total supply in 2008. Similar to platinum, Russia’s contribution to palladium supply has allocating specific plates or ingots of physical palladium to the Trust’s allocated palladium account. The Custodian will provide the Trustee with regular reports detailing the palladium transfers in and out of the Trust’s unallocated and allocated palladium accounts and identifying the palladium plates or ingots held in the Trust’s allocated palladium account. 12 With respect to application of Rule 10A–3 (17 CFR 240.10A–3) under the Securities Exchange of 1934 (‘‘Act’’) (15 U.S.C. 78a), the Trust relies on the exemption contained in Rule 10A–3(c)(7). PO 00000 Frm 00172 Fmt 4703 Sfmt 4703 been variable while South Africa has consistently increased over the past ten years. North America contributes approximately 11% to supply while the recovery of palladium from autocatalysts has increased more than five-fold over the past ten years to account for 13% of supply in 2008. Demand for Palladium Autocatalysts are the largest component of palladium demand, with total demand increasing to 55% of total supply by the end of 2008. Industrial demand (electronics, dentistry, and chemical) has fallen to a low of 23% of total demand in 2001 to 28% of total demand in 2008. Jewelry demand for palladium has increased by the largest of all the key sectors, rising by 232% over the past ten years and contributing a total of 9% of total demand in 2008.13 The investment sector for palladium includes the investment and trading activities of both professional and private investors and speculators. These participants range from large hedge and mutual funds to day-traders on futures exchanges, and retail-level coin collectors. The fabrication and manufacturing sector for palladium represents all the commercial and industrial users of palladium for whom palladium is a daily part of their business. The auto catalyst and jewelry industries are the largest users of palladium. Physical palladium prices performed strongly in early 2008, rising from an opening $370 to a peak of $588 in March—the highest prices since 2001. However, speculative fund interests in the palladium market were amply demonstrated in the third quarter as large fund sales sent the price of physical palladium spiraling to only $199 per ounce at the close of the quarter, the lowest price since October 2005. Prices continued at these low levels as the price of palladium ended 13 The Registration Statement includes a table with data regarding World Palladium Supply and demand 1999–2008. According to the Registration Statement, the table illustrates that the palladium supply over the past ten years has averaged 8.1 million ounces with the majority of production from Russia. Production from Russia, on average accounts for approximately 50% of total production from 1999 to 2008. There is a 24% increase in palladium supply when comparing the average fiveyear periods ended 2003 and 2008, at 7.3 million ounces and 9.0 million ounces, respectively. The biggest source of demand for palladium output over the period shown has come from the autocatalyst sector which has accounted for an approximate average of 58% of all demand from 1999 to 2008. However, autocatalyst demand has decreased in 2008 from its 2001 peak of 72% of total demand to 55% by 2008. The annual demand for palladium over the past 10 years has averaged approximately 7.5 million ounces. E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES the year at $184 per ounce in December 2008. Operation of the Palladium Market The global trade in palladium consists of Over-the-Counter (OTC) transactions in spot, forwards, and options and other derivatives, together with exchangetraded futures and options. The OTC market trades on a 24-hour per day continuous basis and accounts for most global palladium trading. Market makers, as well as others in the OTC market, trade with each other and with their clients on a principal-toprincipal basis. All risks and issues of credit are between the parties directly involved in the transaction. Market makers include the market-making members of the The London Platinum Palladium Market (‘‘LPPM’’), the trade association that acts as the coordinator for activities conducted on behalf of its members and other participants in the LPPM. The four market-making members of the LPPM are: J.Aron & Company (a division of Goldman Sachs International), Engelhard Metals Limited, HSBC Bank USA, N.A. (through its London branch), and Standard Bank. The OTC market provides a relatively flexible market in terms of quotes, price, size, destinations for delivery and other factors. Bullion dealers customize transactions to meet clients’ requirements. The OTC market has no formal structure and no openoutcry meeting place. According to the Registration Statement, the main centers of the OTC market are London, New York, Hong Kong and Zurich. Mining companies, manufacturers of jewelry and industrial products, together with investors and speculators, tend to transact their business through one of these market centers. Centers such as Dubai and several cities in the Far East also transact substantial OTC market business, typically involving jewelry and small plates or ingots (1 kilogram or less) and will hedge their exposure by selling into one of these main OTC centers. Precious metals dealers have offices around the world and most of the world’s major bullion dealers are either members or associate members of the London Bullion Market Association and/or the LPPM. In the OTC market, the standard size of palladium trades between market makers is 1,000 ounces. Liquidity in the OTC market can vary from time to time during the course of the 24-hour trading day. Fluctuations in liquidity are reflected in adjustments to dealing spreads—the differential between a dealer’s ‘‘buy’’ and ‘‘sell’’ prices. The period of greatest liquidity in the palladium market generally VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 occurs at the time of day when trading in the European time zones overlaps with trading in the United States, which is when OTC market trading in London, New York and other centers coincides with futures and options trading on the NYMEX. This period lasts for approximately four hours each New York business day morning. The London Palladium Market Although the market for physical palladium is distributed globally, most OTC market trades are cleared through London. In addition to coordinating market activities, the LPPM acts as the principal point of contact between the market and its regulators. A primary function of the LPPM is its involvement in the promotion of refining standards by maintenance of the ‘‘London/Zurich Good Delivery Lists,’’ which are the lists of LPPM accredited melters and assayers of palladium.14 The LPPM also coordinates market clearing and vaulting, promotes good trading practices and develops standard documentation. Palladium is traded generally on a loco Zurich basis, meaning the precious metal is physically held in vaults in Zurich or is transferred into accounts established in Zurich. The basis for settlement and delivery of a loco Zurich spot trade is payment (generally in U.S. dollars) two business days after the trade date against delivery. Delivery of the palladium can either be by physical delivery or through the clearing systems to an unallocated account. The unit of trade in London is the troy ounce, whose conversion between grams is: 1,000 grams is equivalent to 32.1507465 troy ounces, and one troy ounce is equivalent to 31.1034768 grams. A London/Zurich good delivery plate or ingot is acceptable for delivery in settlement of a transaction on the OTC market. Typically referred to as Good Delivery, a plate or ingot must contain between 32 and 192 troy ounces of palladium with a minimum fineness (or purity) of 999.5 parts per 1,000 (99.95%), be of good appearance, and be easy to handle and stack. The palladium content of a palladium plate or ingot is calculated by multiplying the gross weight (expressed in units of 0.025 troy ounces) by the fineness of the plate or ingot. A Good Delivery plate or ingot must also bear the stamp of one of the melters and assayers who are on the LPPM approved list. Unless otherwise specified, the palladium spot price always refers to that of Good Delivery 14 Terms relating to the Trust and the Shares referred to, but not defined, herein are defined in the Registration Statement. PO 00000 Frm 00173 Fmt 4703 Sfmt 4703 59285 Standards. Business is generally conducted over the phone and through electronic dealing systems. Twice daily during London trading hours there is a fix which provides reference palladium prices for that day’s trading. Many long-term contracts will be priced on the basis of either the morning (a.m.) or afternoon (p.m.) London fix, and market participants will usually refer to one or the other of these prices when looking for a basis for valuations. The London fix is the most widely used benchmark for daily palladium prices and is quoted by various financial information sources. Formal participation in the London fix is traditionally limited to four members, each of which is a bullion dealer and a member of the LPPM. The chairmanship now rotates annually among the four member firms. The morning session of the fix starts at 9:45 a.m. London time and the afternoon session starts at 2 p.m. London time. The members of the LPPM fixing are currently: J.Aron & Company (a division of Goldman Sachs International), Engelhard Metals Limited, HSBC Bank USA N.A. (London branch), and Standard Bank London Limited. Any other market participant wishing to participate in the trading on the fix is required to do so through one of the four palladium fixing members. Orders are placed either with one of the four fixing members or with another precious metals dealer who will then be in contact with a fixing member during the fixing. The fixing members net-off all orders when communicating their net interest at the fixing. The fix begins with the fixing chairman suggesting a ‘‘trying price,’’ reflecting the market price prevailing at the opening of the fix. This is relayed by the fixing members to their dealing rooms which have direct communication with all interested parties. Any market participant may enter the fixing process at any time, or adjust or withdraw his order. The palladium price is adjusted up or down until all the buy and sell orders are matched, at which time the price is declared fixed. All fixing orders are transacted on the basis of this fixed price, which is instantly relayed to the market through various media. The London fix is widely viewed as a full and fair representation of all market interest at the time of the fix. Futures Exchanges The most significant palladium futures exchanges are the NYMEX and the Tokyo Commodity Exchange (‘‘TOCOM’’). The NYMEX is the largest exchange in the world for trading precious metals futures and options and E:\FR\FM\17NON1.SGM 17NON1 59286 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES has been trading palladium since 1974. The TOCOM has been trading palladium since 1982. Trading on these exchanges is based on fixed delivery dates and transaction sizes for the futures and options contracts traded. The NYMEX operates through a central clearance system. On June 6, 2003, TOCOM adopted a similar clearance system. In each case, the exchange acts as a counterparty for each member for clearing purposes. Market Regulation The global palladium markets are overseen and regulated by both governmental and self-regulatory organizations. In addition, certain trade associations have established rules and protocols for market practices and participants. In the United Kingdom, responsibility for the regulation of the financial market participants, including the major participating members of the LPPM, falls under the authority of the Financial Services Authority (‘‘FSA’’) as provided by the Financial Services and Markets Act 2000 (‘‘FSM Act’’). Under this act, all UK-based banks, together with other investment firms, are subject to a range of requirements, including fitness and properness, capital adequacy, liquidity, and systems and controls. The FSA is responsible for regulating investment products, including derivatives, and those who deal in investment products. Regulation of spot, commercial forwards, and deposits of palladium not covered by the FSM Act is provided for by The London Code of Conduct for Non-Investment Products, which was established by market participants in conjunction with the Bank of England. The TOCOM has authority to perform financial and operational surveillance on its members’ trading activities, scrutinize positions held by members and large-scale customers, and monitor the price movements of futures markets by comparing them with cash and other derivative markets’ prices. To act as a Futures Commission Merchant Broker, a broker must obtain a license from Japan’s Ministry of Economy, Trade and Industry (METI), the regulatory authority that oversees the operations of the TOCOM. The Trust will not trade in palladium futures contracts on the NYMEX or on any other futures exchange. The Trust will only take delivery of physical palladium that complies with the NYMEX palladium delivery rules or the LPPM palladium delivery rules. Because the Trust will not trade in palladium futures contracts on any futures exchange, the Trust with not be VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 regulated by the Commodity Futures Trading Commission (‘‘CFTC’’) under the Commodity Exchange Act 15 (‘‘CEA’’) as a ‘‘commodity pool,’’ and will not be operated by a CFTCregulated commodity pool operator. Custody of the Trust’s Palladium Custody of the physical palladium deposited with and held by the Trust will be provided by the Custodian at its London, England vaults, by Zurich SubCustodians selected by the Custodian in their Zurich vaults and by other subcustodians on a temporary basis only. The Custodian is a market maker, clearer and approved weigher under the rules of the LPPM. The Custodian is the custodian of the physical palladium credited to Trust Allocated Account in accordance with the Custody Agreements. The Custodian will segregate the physical palladium credited to the Trust Allocated Account from any other precious metal it holds or holds for others by entering appropriate entries in its books and records, and will require any Zurich Sub-Custodian it appoints to also segregate the physical palladium of the Trust from the other palladium held by them for other customers of the Custodian and the Zurich SubCustodian’s other customers. The Custodian will require any Zurich SubCustodian it appoints to identify in such Zurich Sub-Custodian’s books and records the Trust as having the rights to the physical palladium credited to its Trust Allocated Account. The Custodian, as instructed by the Trustee, is authorized to accept, on behalf of the Trust, deposits of palladium in unallocated form. Acting on standing instructions specified in the Custody Agreements, the Custodian will or will require a Zurich Sub-Custodian to allocate palladium deposited in unallocated form with the Trust by selecting plates or ingots of physical palladium for deposit to the Trust Allocated Account. All physical palladium allocated to the Trust must conform to the rules, regulations, practices and customs of the LPPM. The process of withdrawing palladium from the Trust for a redemption of a Basket will follow the same general procedure as for depositing palladium with the Trust for a creation of a Basket, only in reverse. Each transfer of palladium between the Trust Allocated Account and the Trust Unallocated Account connected with a creation or redemption of a Basket may result in a small amount of palladium being held in the Trust Unallocated 15 7 PO 00000 U.S.C. 1 et seq. Frm 00174 Fmt 4703 Sfmt 4703 Account after the completion of the transfer. In making deposits and withdrawals between the Trust Allocated Account and the Trust Unallocated Account, the Custodian will use commercially reasonable efforts to minimize the amount of palladium held in the Trust Unallocated Account as of the close of each business day. According to the Registration Statement, the Trust is not registered as an investment company under the Investment Company Act of 1940 16 and is not required to register under such act. The Trust will not hold or trade in commodity futures contracts regulated by the CEA, as administered by the CFTC. The Trust is not a commodity pool for purposes of the CEA, and neither the Sponsor nor the Trustee is subject to regulation by the CFTC as a commodity pool operator or a commodity trading advisor in connection with the Shares. Sponsor’s Estimate of Expected Size of the Trust The Sponsor has made representations to the Commission regarding the expected size of the Trust and the expected impact of the offering of the Shares on the global palladium market.17 In the May 15, 2009 Letter, the Sponsor has stated its expectation that the Trust’s assets under management (‘‘AUM’’) would be between $100 million and $200 million after three years of the Trust’s operation, and using the palladium spot market price of $242.00 per ounce as of May 8, 2009, the Trust would be expected to be acquiring between approximately 138,000 to 275,000 ounces of palladium on an annual basis.18 The Sponsor has represented that it does not believe that the currently expected size of the Trust will have a meaningful effect on the global supply or demand for palladium, and that the Trust’s highest forecast palladium acquisitions would represent 3.4% and 3.6%, respectively, of the 10year average annual supply and demand for palladium through the end of 2008.19 The Sponsor, therefore, has stated its belief that, in view of the amount of Shares sought to be registered, the Trust believes there will be a market neutral impact given that the Shares can be a 16 15 U.S.C. 80a. Supplemental Comment Response regarding the Trust, dated May 15, 2009, from Peter J. Shea, Katten Muchin Rosenman LLP, to the Commission (submitted via EDGAR) (‘‘May 15, 2009 Letter’’). 18 The Exchange notes that ETF Securities Ltd., the Sponsor’s parent entity, has sponsored ETFS Palladium ETP, traded on the London Stock Exchange (ticker symbol: PHPD), which had AUM of approximately $61.4 million as of May 8, 2009. 19 See note 13, supra. 17 See E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices current source of supply at then current prices through redemptions.20 In the May 15, 2009 Letter, the Sponsor also states that it expects that the offering of the Shares will not have a meaningful impact on the global palladium market, founded on the Sponsor’s belief that the present Share offering is limited to an appropriate size and that arbitrage opportunities between palladium market prices and the Trust’s net asset value together with the low cost creation and redemption process utilizing physical metal will neutralize any impact of the Trust on the broader palladium market.21 According to the Registration Statement, since there is no limit on the amount of palladium that the Trust may acquire, the Trust, as it grows, may have an impact on the supply and demand of palladium that ultimately may affect the price of the Shares in a manner unrelated to other factors affecting the global market for palladium. Secondary Market Trading While the Trust’s investment objective is for the Shares to reflect the performance of palladium, less the expenses of the Trust, the Shares may trade in the secondary market on the NYSE Arca at prices that are lower or higher relative to their net asset value (‘‘NAV’’) per Share. The amount of the discount or premium in the trading price relative to the NAV per Share may be influenced by non-concurrent trading hours between the NYSE Arca and the NYMEX and London. While the Shares will trade on the NYSE Arca until 8 p.m. New York time, liquidity in the global palladium market will be reduced after the close of the NYMEX at 1 p.m. New York time. As a result, during this time, trading spreads, and the resulting premium or discount, on the Shares may widen. mstockstill on DSKH9S0YB1PROD with NOTICES Trust Expenses The Trust’s only ordinary recurring expense is expected to be equal to the Sponsor’s Fee. In exchange for the Sponsor’s Fee, the Sponsor has agreed to assume the following administrative and marketing expenses incurred by the Trust: The Trustee’s monthly fee and out-of-pocket expenses, the Custodian’s 20 The Sponsor states that it intends to recast its analysis each time it seeks to register additional Shares of the Trust in the future to ensure that additional Trust offerings will not be disruptive to palladium supply and demand. May 15, 2009 Letter at p. 4. As stated in the May 15, 2009 Letter, the Registration Statement seeks to register 12,880,000 Shares, and that, at an estimated palladium acquisition rate of 275,000 ounces per year, the Trust would complete its Share offering in approximately 4.7 years. 21 May 15, 2009 Letter at p. 5. VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 fee, Exchange listing fees, SEC registration fees, printing and mailing costs, audit fees and up to $100,000 per annum in legal expenses. The Sponsor will also pay the costs of the Trust’s organization and the initial sale of the Shares, including the applicable SEC registration fees. The Sponsor’s Fee will accrue daily at an annualized rate equal to a specified percentage of the adjusted net asset value of the Trust and will be payable monthly in arrears. The Sponsor, from time to time, may temporarily waive all or a portion of the Sponsor’s Fee at its discretion for a stated period of time. The Trust will deliver palladium to the Sponsor to pay the Sponsor’s Fee and sell palladium to raise the funds needed for the payment of all Trust expenses not assumed by the Sponsor. The purchase price received as consideration for such sales will be the Trust’s sole source of funds to cover its liabilities. The Trust will not engage in any activity designed to derive a profit from changes in the price of palladium. Creation and Redemption Procedures The Trust will create and redeem Shares in one or more Baskets (a Basket equals a block of 50,000 Shares). The creation and redemption of Baskets will only be made ‘‘in-kind’’ in exchange for the delivery to the Trust or the distribution by the Trust of the amount of palladium and any cash represented by the Baskets being created or redeemed, the amount of which will be based on the combined NAV of the number of Shares included in the Baskets being created or redeemed determined on the day the order to create or redeem Baskets is properly received. The creation and redemption of Baskets may occur daily. Authorized Participants are the only persons that may place orders to create and redeem Baskets. Authorized Participants must be (1) registered broker-dealers or other securities market participants, such as banks and other financial institutions that are exempt from registration as broker-dealers to engage in securities transactions and (2) participants in DTC. To become an Authorized Participant, a person must enter into an Authorized Participant Agreement with the Sponsor and the Trustee. The Authorized Participant Agreement provides the procedures for the creation and redemption of Baskets and for the delivery of the palladium and any cash required for such creations and redemptions. According to the Registration Statement, certain Authorized Participants are expected to have the facility to participate directly in the PO 00000 Frm 00175 Fmt 4703 Sfmt 4703 59287 physical palladium market and the palladium futures market. In some cases, an Authorized Participant may from time to time acquire palladium from or sell palladium to its affiliated palladium trading desk, which may profit in these instances. Certain Authorized Participants will be regulated under federal and state banking laws and regulations. Each Authorized Participant will have its own set of rules and procedures, internal controls and information barriers as it determines is appropriate in light of its own regulatory regime. Shareholders who are not Authorized Participants will only be able to redeem their shares by an Authorized Participant. All palladium will be delivered to the Trust and distributed by the Trust in unallocated form through credits and debits between Authorized Participant Unallocated Accounts and the Trust Unallocated Account. Palladium transferred from an Authorized Participant Unallocated Account to the Trust in unallocated form will first be credited to the Trust Unallocated Account. Thereafter, the Custodian will allocate specific plates or ingots of palladium representing the amount of palladium credited to the Trust Unallocated Account (to the extent such amount is representable by whole palladium plates or ingots) to the Trust Allocated Account. The movement of palladium is reversed for the distribution of palladium to an Authorized Participant in connection with the redemption of Baskets. All physical palladium represented by a credit to any Authorized Participant Unallocated Account and to the Trust Unallocated Account and all physical palladium held in the Trust Allocated Account with the Custodian must be of at least a minimum fineness (or purity) of 999.5 parts per 1,000 (99.95%) and otherwise conform to the rules, regulations practices and customs of the LPPM, including the specifications for a Good Delivery plate or ingot. Creation Procedures On any business day, an Authorized Participant may place an order with the Trustee to create one or more Baskets. Creation and redemption orders will be accepted on ‘‘business days’’ when the NYSE Arca is open for regular trading. Settlements of such orders requiring receipt or delivery, or confirmation of receipt or delivery, of palladium in the United Kingdom, Zurich or another jurisdiction will occur on ‘‘business days’’ when (1) banks in the United Kingdom, Zurich or such other jurisdiction and (2) the London/Zurich E:\FR\FM\17NON1.SGM 17NON1 59288 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES or such other palladium markets are regularly open for business. If such banks or the London/Zurich palladium markets are not open for regular business for a full day, such a day will only be a ‘‘business day’’ for settlement purposes if the settlement procedures can be completed by the end of such day. Settlement of palladium deliveries, which occur loco Zurich, may be delayed for longer than three business days. Settlement of orders requiring receipt or delivery, or confirmation of receipt or delivery, of Shares will occur, after confirmation of the applicable palladium delivery, on ‘‘business days’’ when the NYSE Arca is open for regular trading. Purchase orders must be placed by 4 p.m. or the close of regular trading on the NYSE Arca, whichever is earlier. The day on which the Trustee receives a valid purchase order is the purchase order date. By placing a purchase order, an Authorized Participant agrees to deposit palladium with the Trust, or a combination of palladium and cash, as described below. Prior to the delivery of Baskets for a purchase order, the Authorized Participant must also have wired to the Trustee the non-refundable transaction fee due for the purchase order. Determination of Required Deposits The total deposit required to create each Basket (Creation Basket Deposit) will be an amount of palladium and cash, if any, that is in the same proportion to the total assets of the Trust (net of estimated accrued but unpaid fees, expenses and other liabilities) on the date the order to purchase is properly received as the number of Shares to be created under the purchase order is in proportion to the total number of Shares outstanding on the date the order is received. The Sponsor anticipates that in the ordinary course of the Trust’s operations a cash deposit will not be required for the creation of Baskets. The amount of the required palladium deposit is determined by dividing the number of ounces of palladium held by the Trust by the number of Baskets outstanding, as adjusted for estimated accrued but unpaid fees and expenses as described in the next paragraph. The amount of any required cash deposit is determined as follows. The estimated unpaid fees, expenses and liabilities of the Trust accrued through the purchase order date are subtracted from any cash held or receivable by the Trust as of the purchase order date. The remaining amount is divided by the number of Shares outstanding immediately before the purchase order VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 date and then multiplied by the number of Shares being created pursuant to the purchase order. If the resulting amount is positive, this amount is the required cash deposit. If the resulting amount is negative, the amount of the required palladium deposit will be reduced by the number of fine ounces of palladium equal in value to that resulting amount, determined at the price of palladium used in calculating the NAV of the Trust on the purchase order date. Fractions of a fine ounce of palladium smaller than 0.001 of a fine ounce which are included in the palladium deposit amount are disregarded. All questions as to the composition of a Creation Basket Deposit will be finally determined by the Trustee. The Trustee’s determination of the Creation Basket Deposit shall be final and binding on all persons interested in the Trust. Delivery of Required Deposits An Authorized Participant who places a purchase order is responsible for crediting its Authorized Participant Unallocated Account with the required palladium deposit amount by the third business day in Zurich following the purchase order date. Upon receipt of the palladium deposit amount, the Custodian, after receiving appropriate instructions from the Authorized Participant and the Trustee, will transfer on the third business day following the purchase order date the palladium deposit amount from the Authorized Participant Unallocated Account to the Trust Unallocated Account and the Trustee will direct DTC to credit the number of Baskets ordered to the Authorized Participant’s DTC account. Acting on standing instructions given by the Trustee, the Custodian will transfer the palladium deposit amount from the Trust Unallocated Account to the Trust Allocated Account by transferring palladium plates and ingots from its inventory to the Trust Allocated Account. The Custodian will use commercially reasonable efforts to complete the transfer of palladium to the Trust Allocated Account prior to the time by which the Trustee is to credit the Basket to the Authorized Participant’s DTC account; if, however, such transfers have not been completed by such time, the number of Baskets ordered will be delivered against receipt of the palladium deposit amount in the Trust Unallocated Account, and all Shareholders will be exposed to the risks of unallocated palladium to the extent of that palladium deposit amount until the Custodian completes the allocation process. PO 00000 Frm 00176 Fmt 4703 Sfmt 4703 The Trustee may reject a purchase order or a Creation Basket Deposit if such order or Creation Basket Deposit if [sic] not presented in proper form as described in the Authorized Participant Agreement or if the fulfillment of the order, in the opinion of counsel, might be unlawful. Redemption Procedures According to the Registration Statement, the procedures by which an Authorized Participant can redeem one or more Baskets will mirror the procedures for the creation of Baskets. On any business day, an Authorized Participant may place an order with the Trustee to redeem one or more Baskets. Redemption orders must be placed by 4 p.m. or the close of regular trading on the NYSE Arca, whichever is earlier. A redemption order so received is effective on the date it is received in satisfactory form by the Trustee. The redemption procedures allow Authorized Participants to redeem Baskets and do not entitle an individual Shareholder to redeem any Shares in an amount less than a Basket, or to redeem Baskets other than through an Authorized Participant. By placing a redemption order, an Authorized Participant agrees to deliver the Baskets to be redeemed through DTC’s book-entry system to the Trust not later than the third business day following the effective date of the redemption order. Prior to the delivery of the redemption distribution for a redemption order, the Authorized Participant must also have wired to the Trustee the non-refundable transaction fee due for the redemption order. Determination of Redemption Distribution The redemption distribution from the Trust will consist of (1) a credit to the redeeming Authorized Participant’s Authorized Participant Unallocated Account representing the amount of the palladium held by the Trust evidenced by the Shares being redeemed plus or minus (2) the cash redemption amount. The cash redemption amount is equal to the value of all assets of the Trust other than palladium less all estimated accrued but unpaid expenses and other liabilities, divided by the number of Baskets outstanding and multiplied by the number of Baskets included in the Authorized Participant’s redemption order. The Trustee will distribute any positive cash redemption amount through DTC to the account of the Authorized Participant as recorded on DTC’s book entry system. If the cash redemption amount is negative, the credit to the Authorized Participant E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices Unallocated Account will be reduced by the number of ounces of palladium equal in value to the negative cash redemption amount, determined at the price of palladium used in calculating the NAV of the Trust on the redemption order date. The Sponsor anticipates that in the ordinary course of the Trust’s operations there will be no cash distributions made to Authorized Participants upon redemptions. Fractions of a fine ounce of palladium included in the redemption distribution smaller than 0.001 of a fine ounce are disregarded. Redemption distributions will be subject to the deduction of any applicable tax or other governmental charges which may be due. mstockstill on DSKH9S0YB1PROD with NOTICES Delivery of Redemption Distribution The redemption distribution due from the Trust will be delivered to the Authorized Participant on the third business day following the redemption order date if, by 9 a.m. New York time on such third business day, the Trustee’s DTC account has been credited with the Baskets to be redeemed. Terms relating to the Trust and the Shares referred to, but not defined, herein are defined in the Registration Statement. The Custodian will transfer the redemption palladium amount from the Trust Allocated Account to the Trust Unallocated Account and, thereafter, to the redeeming Authorized Participant’s Authorized Participant Unallocated Account. The Trustee may, in its discretion, and will when directed by the Sponsor, suspend the right of redemption, or postpone the redemption settlement date, (1) for any period during which the NYSE Arca is closed other than customary weekend or holiday closings, or trading on the NYSE Arca is suspended or restricted or (2) for any period during which an emergency exists as a result of which delivery, disposal or evaluation of palladium is not reasonably practicable. The Trustee will reject a redemption order if the order is not in proper form as described in the Authorized Participant Agreement or if the fulfillment of the order, in the opinion of its counsel, might be unlawful. Creation and Redemption Transaction Fee To defray the costs incurred by the Trustee in providing services for processing the creation and redemption of Baskets, an Authorized Participant will be required to pay a transaction fee to the Trustee of $500 per order to create or redeem Baskets. An order may include multiple Baskets. The VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 transaction fee may be reduced, increased or otherwise changed by the Trustee with the consent of the Sponsor. The Trustee shall notify DTC of any agreement to change the transaction fee and will not implement any increase in the fee for the redemption of Baskets until 30 days after the date of the notice. Additional information regarding the Shares and the operation of the Trust, including termination events, risks, and creation and redemption procedures, are described in the Registration Statement. Termination Events The Trustee will terminate and liquidate the Trust if the aggregate market capitalization of the Trust, based on the closing price for the Shares, was less than $350 million (as adjusted for inflation) at any time after the first anniversary after the Trust’s formation and the Trustee receives, within six months after the last of those trading days, notice from the Sponsor of its decision to terminate the Trust. The Trustee will terminate the Trust if the CFTC determines that the Trust is a commodities pool under the CEA. The Trustee may also terminate the Trust upon the agreement of the owners of beneficial interests in the Shares (‘‘Shareholders’’) owning at least 75% of the outstanding Shares. The Trust expects to create and redeem the Shares from time to time, but only in one or more Baskets (a Basket equals a block of 50,000 Shares). The creation and redemption of Baskets requires the delivery to the Trust or the distribution by the Trust of the amount of palladium and any cash represented by the Baskets being created or redeemed, the amount of which will be based on the combined NAV of the number of Shares included in the Baskets being created or redeemed. The initial amount of palladium required for deposit with the Trust to create Shares is 5,000 ounces per Basket. The number of ounces of palladium required to create a Basket or to be delivered upon the redemption of a Basket will gradually decrease over time, due to the accrual of the Trust’s expenses and the sale or delivery of the Trust’s palladium to pay the Trust’s expenses. Baskets may be created or redeemed only by Authorized Participants, who will pay a transaction fee for each order to create or redeem Baskets and may sell the Shares included in the Baskets they create to other investors. Additional information regarding the Shares and the operation of the Trust, including termination events, risks, and creation and redemption procedures, are described in the Registration Statement. PO 00000 Frm 00177 Fmt 4703 Sfmt 4703 59289 Valuation of Palladium, Definition of Net Asset Value and Adjusted Net Asset Value (‘‘ANAV’’) As of the London p.m. Fix on each day that the NYSE Arca is open for regular trading or, if there is no London p.m. Fix on such day or the London p.m. Fix has not been announced by 12 noon New York time on such day, as of 12 noon New York time on such day (Evaluation Time), the Trustee will evaluate the palladium held by the Trust and determine both the ANAV and the NAV of the Trust. At the Evaluation Time, the Trustee will value the Trust’s palladium on the basis of that day’s London p.m. Fix or, if no London p.m. Fix is made on such day or has not been announced by the Evaluation Time, the next most recent London palladium price fix (a.m. or p.m.) determined prior to the Evaluation Time will be used, unless the Sponsor determines that such price is inappropriate as a basis for evaluation. In the event the Sponsor determines that the London p.m. Fix or such other publicly available price as the Sponsor may deem fairly represents the commercial value of the Trust’s palladium is not an appropriate basis for evaluation of the Trust’s palladium, it shall identify an alternative basis for such evaluation to be employed by the Trustee. Neither the Trustee nor the Sponsor shall be liable to any person for the determination that the London p.m. Fix or last prior London palladium price fix is not appropriate as a basis for evaluation of the Trust’s palladium or for any determination as to the alternative basis for such evaluation provided that such determination is made in good faith.22 Once the value of the palladium has been determined, the Trustee will subtract all estimated accrued but unpaid fees, expenses and other liabilities of the Trust from the total value of the palladium and all other assets of the Trust (other than any amounts credited to the Trust’s reserve account, if established). The resulting figure is the ANAV of the Trust. The ANAV of the Trust is used to compute the Sponsor’s Fee. To determine the Trust’s NAV, the Trustee will subtract the amount of estimated accrued but unpaid fees computed by reference to the ANAV of the Trust and to the value of the palladium held by the Trust from the ANAV of the Trust. The resulting figure 22 The Exchange, pursuant to NYSE Arca Equities Rule 7.12, has the discretion to halt trading in the Shares if the London Fix is not determined or available for an extended period based on extraordinary circumstances or market conditions. E:\FR\FM\17NON1.SGM 17NON1 59290 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices is the NAV of the Trust. The Trustee will also determine the NAV per Share by dividing the NAV of the Trust by the number of the Shares outstanding as of the close of trading on the NYSE Arca (which includes the net number of any Shares created or redeemed on such evaluation day). The NAV of the Trust is the aggregate value of the Trust’s assets less its liabilities (which include estimated accrued but unpaid fees and expenses). In determining the NAV of the Trust, the Trustee will value the palladium held by the Trust on the basis of the price of an ounce of palladium as set by the afternoon session of the twice daily fix of the price of an ounce of palladium which starts at 2 p.m. London, England time (London p.m. Fix) and is performed by the four members of the London Platinum and Palladium Market (LPPM). The Trustee will determine the NAV of the Trust on each day the NYSE Arca is open for regular trading, at the earlier of the London p.m. Fix for the day or 12 noon New York time. If no London p.m. Fix is made on a particular evaluation day or has not been announced by 12 noon New York time on a particular evaluation day, the next most recent London palladium price fix (a.m. or p.m.) will be used in the determination of the NAV of the Trust, unless the Sponsor determines that such price is inappropriate to use as basis for such determination. The Trustee will also determine the NAV per Share, which equals the NAV of the Trust, divided by the number of outstanding Shares. The Shares will be book-entry only and individual certificates will not be issued for the Shares. mstockstill on DSKH9S0YB1PROD with NOTICES Liquidity The Shares may trade at, above or below the NAV per Share. The NAV per Share will fluctuate with changes in the market value of the Trust’s assets. The trading price of the Shares will fluctuate in accordance with changes in the NAV per Share as well as market supply and demand. The amount of the discount or premium in the trading price relative to the NAV per Share may be influenced by non-concurrent trading hours between the NYSE Arca and the major palladium markets. While the Shares will trade on the NYSE Arca until 8 p.m. New York time, liquidity in the market for palladium will be reduced after the close of the major world palladium markets, including London and the NYMEX. As a result, during this time, trading spreads, and the resulting premium or discount, on the Shares may widen. VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 Availability of Information Regarding Palladium Prices Currently, the Consolidated Tape Plan does not provide for dissemination of the spot price of a commodity, such as palladium, over the Consolidated Tape. However, there will be disseminated over the Consolidated Tape the last sale price for the Shares, as is the case for all equity securities traded on the Exchange (including exchange-traded funds). In addition, there is a considerable amount of palladium price and palladium market information available on public Web sites and through professional and subscription services. Investors may obtain on a 24-hour basis palladium pricing information based on the spot price for an ounce of palladium from various financial information service providers, such as Reuters and Bloomberg. Reuters and Bloomberg provide at no charge on their Web sites delayed information regarding the spot price of palladium and last sale prices of palladium futures, as well as information about news and developments in the palladium market. Reuters and Bloomberg also offer a professional service to subscribers for a fee that provides information on palladium prices directly from market participants. An organization named EBS provides an electronic trading platform to institutions such as bullion banks and dealers for the trading of spot palladium, as well as a feed of live streaming prices to Reuters and Moneyline Telerate subscribers. Complete real-time data for palladium futures and options prices traded on the NYMEX are available by subscription from Reuters and Bloomberg. The NYMEX also provides delayed futures and options information on current and past trading sessions and market news free of charge on its Web site. There are a variety of other public Web sites providing information on palladium, ranging from those specializing in precious metals to sites maintained by major newspapers, such as The Wall Street Journal. In addition, the London a.m. Fix and London p.m. Fix are publicly available at no charge at https://www.lbma.org.uk/ statistics_current.htm or https:// www.thebulliondesk.com. The Trust Web site will provide an intraday indicative value (‘‘IIV’’) per share for the Shares, updated at least every 15 seconds, as calculated by the Exchange or a third party financial data provider, during the Exchange’s Core Trading Session (9:30 a.m. to 4 p.m., New York time). The IIV is calculated by multiplying the indicative spot price PO 00000 Frm 00178 Fmt 4703 Sfmt 4703 of palladium by the quantity of palladium backing each Share. The Trust Web site will also provide the NAV of the Trust as calculated each business day by the Sponsor. In addition, the Web site for the Trust will contain the following information, on a per Share basis, for the Trust: (a) The NAV as of the close of the prior business day and the mid-point of the bid-ask price 23 at the close of trading in relation to such NAV (‘‘Bid/Ask Price’’), and a calculation of the premium or discount of such price against such NAV; and (b) data in chart format displaying the frequency distribution of discounts and premiums of the Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters. The Web site for the Trust will also provide the following information: the Creation Basket Deposit, the Trust’s prospectus, and the two most recent reports to stockholders. Finally, the Trust Web site will also provide the last sale price of the Shares as traded in the US market. The Exchange will provide on its Web site (https://www.nyx.com) a link to the Trust’s Web site. In addition, the Exchange will make available over the Consolidated Tape quotation information, trading volume, closing prices and NAV for the Shares from the previous day. Criteria for Initial and Continued Listing The Trust will be subject to the criteria in Rule 8.201(e) for initial and continued listing of the Shares.24 A minimum of 100,000 Shares will be required to be outstanding at the start of trading.25 The minimum number of shares required to be outstanding is comparable to requirements that have been applied to previously listed shares of the streetTRACKS Gold Trust, the iShares COMEX Gold Trust, the iShares Silver Trust and exchange-traded funds. It is anticipated that the initial price of a Share be approximately $22.00. The Exchange believes that the anticipated minimum number of Shares outstanding at the start of trading is sufficient to provide adequate market liquidity. Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Fund subject to the Exchange’s existing rules governing the trading of 23 The bid-ask price of the Trust is determined using the highest bid and lowest offer on the Consolidated Tape as of the time of calculation of the closing day NAV. 24 See e-mail from Michael Cavalier, Chief Counsel, NYSE Euronext, to David Liu, Assistant Director, Christopher W. Chow, Special Counsel, and Andrew Madar, Special Counsel, Commission, dated November 9, 2009. 25 Id. E:\FR\FM\17NON1.SGM 17NON1 mstockstill on DSKH9S0YB1PROD with NOTICES Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices equity securities. Trading in the Shares on the Exchange will occur in accordance with NYSE Arca Equities Rule 7.34(a). The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. The minimum trading increment for Shares on the Exchange will be $0.01. Further, NYSE Arca Equities Rule 8.201 sets forth certain restrictions on ETP Holders acting as registered Market Makers in the Shares to facilitate surveillance. Pursuant to NYSE Arca Equities Rule 8.201(h), an ETP Holder acting as a registered Market Maker in the Shares is required to provide the Exchange with information relating to its trading in the underlying palladium, related futures or options on futures, or any other related derivatives. NYSE Arca Equities Rule 8.201(i) prohibits an ETP Holder acting as a registered Market Maker in the Shares from using any material nonpublic information received from any person associated with an ETP Holder or employee of such person regarding trading by such person or employee in the underlying palladium, related futures or options on futures or any other related derivative (including the Shares). As a general matter, the Exchange has regulatory jurisdiction over its ETP Holders and their associated persons, which include any person or entity controlling an ETP Holder, as well as a subsidiary or affiliate of an ETP Holder that is in the securities business. A subsidiary or affiliate of an ETP Holder that does business only in commodities or futures contracts would not be subject to Exchange jurisdiction, but the Exchange could obtain information regarding the activities of such subsidiary or affiliate through surveillance sharing agreements with regulatory organizations of which such subsidiary or affiliate is a member. With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares. Trading on the Exchange in the Shares may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which conditions in the underlying palladium market have caused disruptions and/or lack of trading, or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. In addition, trading in Shares will be subject to trading halts caused by extraordinary market volatility pursuant VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 to the Exchange’s ‘‘circuit breaker’’ rule.26 Surveillance The Exchange intends to utilize its existing surveillance procedures applicable to derivative products (including Commodity-Based Trust Shares) to monitor trading in the Shares. The Exchange represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. The Exchange’s current trading surveillance focuses on detecting securities trading outside their normal patterns. When such situations are detected, surveillance analysis follows and investigations are opened, where appropriate, to review the behavior of all relevant parties for all relevant trading violations. Also, pursuant to NYSE Arca Equities Rule 8.201(h), the Exchange is able to obtain information regarding trading in the Shares and the underlying palladium, palladium futures contracts, options on palladium futures, or any other palladium derivative, through ETP Holders acting as registered Market Makers, in connection with such ETP Holders’ proprietary or customer trades which they effect on any relevant market. In addition, the Exchange may obtain trading information via the Intermarket Surveillance Group (‘‘ISG’’) from other exchanges who are members of the ISG.27 NYMEX is an ISG member. Information Bulletin Prior to the commencement of trading, the Exchange will inform its ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Specifically, the Information Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares in Baskets (including noting that Shares are not individually redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (3) how information regarding the IIV is disseminated; (4) the requirement that ETP Holders deliver a 26 See NYSE Arca Equities Rule 7.12. list of ISG members is available at https:// www.isgportal.org. The Exchange notes that TOCOM is not an ISG member and the Exchange does not have in place a comprehensive surveillance sharing agreement with such market. In addition, the Exchange does not have access to information regarding palladium-related OTC transactions in spot, forwards, options or other derivatives. 27 A PO 00000 Frm 00179 Fmt 4703 Sfmt 4703 59291 prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; (5) the possibility that trading spreads and the resulting premium or discount on the Shares may widen as a result of reduced liquidity of palladium trading during the Core and Late Trading Sessions after the close of the major world palladium markets; and (6) trading information. For example, the Information Bulletin will advise ETP Holders, prior to the commencement of trading, of the prospectus delivery requirements applicable to the Trust. The Exchange notes that investors purchasing Shares directly from the Trust (by delivery of the Creation Basket Deposit) will receive a prospectus. ETP Holders purchasing Shares from the Trust for resale to investors will deliver a prospectus to such investors. In addition, the Information Bulletin will reference that the Trust is subject to various fees and expenses described in the Registration Statement. The Information Bulletin will also reference the fact that there is no regulated source of last sale information regarding physical palladium, that the Commission has no jurisdiction over the trading of palladium as a physical commodity, and that the CFTC has regulatory jurisdiction over the trading of palladium futures contracts and options on palladium futures contracts. The Information Bulletin will also discuss any relief, if granted, by the Commission or the staff from any rules under the Act. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) 28 of the Act, in general, and furthers the objectives of Section 6(b)(5),29 in particular, because it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments and perfect the mechanisms of a free and open market and to protect investors and the public interest. The Exchange believes that the proposed rule change will facilitate the listing and trading of an additional type of commodity-based product that will enhance competition among market participants, to the benefit of investors and the marketplace. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose 28 15 29 15 E:\FR\FM\17NON1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 17NON1 59292 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve the proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: mstockstill on DSKH9S0YB1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2009–94 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2009–94. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSEArca–2009–94 and should be submitted on or before December 8, 2009. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–27494 Filed 11–16–09; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60965; File No. SR– NASDAQ–2009–097] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change, as Modified by Amendment No.1, to Add SeventyFive Options Classes to the Penny Pilot Program November 9, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 28, 2009, The NASDAQ Stock Market LLC (‘‘Nasdaq’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by Nasdaq. Nasdaq filed Amendment No. 1 to the proposal on November 5, 2009.3 The Commission is publishing 30 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 In Amendment No. 1, Nasdaq proposed to correct a technical error in Section III. The change has no effect on the substance of the proposed rule change. 1 15 PO 00000 Frm 00180 Fmt 4703 Sfmt 4703 this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Nasdaq is filing with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) a proposal for the NASDAQ Options Market (‘‘NOM’’ or ‘‘Exchange’’) to designate seventy-five options classes to be added to the Penny Pilot in options classes in certain issues (‘‘Penny Pilot’’ or ‘‘Pilot’’) on November 2, 2009.4 The Exchange is not proposing to amend any rule text, but simply administering or enforcing an existing rule.5 The text of the proposed rule change is available from Nasdaq’s Web site at https://nasdaq.cchwallstreet.com, at Nasdaq’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Nasdaq included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this filing is to identify the next seventy-five options classes to be added to the Penny Pilot effective November 2, 2009. In the Exchange’s immediately effective filing to extend and expand the Penny Pilot through December 31, 2010,6 the Exchange proposed expanding the Pilot four times on a 4 The Penny Pilot was established in March 2008 and in October 2009 was expanded and extended through December 31, 2010. See Securities Exchange Act Release Nos. 57579 (March 28, 2008), 73 FR 18587 (April 4, 2008) (SR–NASDAQ–2008– 026) (notice of filing and immediate effectiveness establishing Penny Pilot); and 60874 (October 23, 2009) (SR–NASDAQ–2009–091) (notice of filing and immediate effectiveness expanding and extending Penny Pilot). 5 See Chapter VI, Section 5 regarding the Penny Pilot. 6 See Securities Exchange Act Release No. 60874 (October 23, 2009) (SR–NASDAQ–2009–091) (notice of filing and immediate effectiveness). E:\FR\FM\17NON1.SGM 17NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 220 (Tuesday, November 17, 2009)]
[Notices]
[Pages 59283-59292]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-27494]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60971; File No. SR-NYSEArca-2009-94]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading of Shares of
ETFS Palladium Trust

November 9, 2009.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on October 20, 2009, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

NYSE Arca, through its wholly-owned subsidiary NYSE Arca Equities,
Inc. (``NYSE Arca Equities''), proposes to list and trade shares of the
ETFS Palladium Trust (the ``Trust'') pursuant to NYSE Arca Equities
Rule 8.201. The text of the proposed rule change is available on the
Exchange's Web site at https://www.nyse.com, at the Exchange's principal
office and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
The Exchange proposes to list and trade ETFS Palladium Shares
(``Shares'') of the Trust under NYSE Arca Equities Rule 8.201. Under
NYSE Arca Equities Rule 8.201, the Exchange may propose to list and/or
trade pursuant to unlisted trading privileges (``UTP'') ``Commodity-
Based Trust Shares.'' \3\ The Commission has previously approved
listing on the Exchange under NYSE Arca Equities Rule 8.201 of other
issues of Commodity-Based Trust Shares. The Commission has approved
listing on the Exchange of the streetTRACKS Gold Trust and iShares
COMEX Gold Trust.\4\ Prior to their listing on the Exchange, the
Commission approved listing of the streetTRACKS Gold Trust on the New
York Stock Exchange (``NYSE'') and listing of iShares COMEX Gold Trust
on the American Stock Exchange LLC (now known as ``NYSE Amex LLC'').\5\
In

[[Page 59284]]

addition, the Commission has approved trading of the streetTRACKS Gold
Trust and iShares Silver Trust on the Exchange pursuant to UTP.\6\ The
Commission also has approved listing of the iShares Silver Trust on the
Exchange \7\ and, previously, listing of the iShares Silver Trust on
the American Stock Exchange LLC.\8\
---------------------------------------------------------------------------

\3\ Commodity-Based Trust Shares are securities issued by a
trust that represent investors' discrete identifiable and undivided
beneficial ownership interest in the commodities deposited into the
Trust.
\4\ See Securities Exchange Act Release No. 56224 (August 8,
2007), 72 FR 45850 (August 15, 2007) (SR-NYSEArca-2007-76)
(approving listing on the Exchange of the streetTRACKS Gold Trust);
Securities Exchange Act Release No. 56041 (July 11, 2007), 72 FR
39114 (July 17, 2007) (SR-NYSEArca-2007-43) (order approving listing
on the Exchange of iShares COMEX Gold Trust).
\5\ See Securities Exchange Act Release No. 50603 (October 28,
2004), 69 FR 64614 (November 5, 2004) (SR-NYSE-2004-22) (order
approving listing of streetTRACKS Gold Trust on NYSE); Securities
Exchange Act Release No. 51058 (January 19, 2005), 70 FR 3749
(January 26, 2005) (SR-Amex-2004-38) (order approving listing of
iShares COMEX Gold Trust on the American Stock Exchange LLC).
\6\ See Securities Exchange Act Release Nos. 53520 (March 20,
2006), 71 FR 14977 (March 24, 2006) (SR-PCX-2005-117) (approving
trading on the Exchange pursuant to UTP of the iShares Silver
Trust); 51245 (February 23, 2005), 70 FR 10731 (March 4, 2005) (SR-
PCX-2004-117) (approving trading on the Exchange of the streetTRACKS
Gold Trust pursuant to UTP).
\7\ See Securities Exchange Act Release Nos. 58956 (November 14,
2008), 73 FR 71074 (November 24, 2008) (SR-NYSEArca-2008-124)
(approving listing on the Exchange of the iShares Silver Trust)).
\8\ See Securities Exchange Act Release No. 53521 (March 20,
2006), 71 FR 14967 (March 24, 2006) (SR-Amex-2005-72) (approving
listing on the American Stock Exchange LLC of the iShares Silver
Trust).
---------------------------------------------------------------------------

The Trust will issue Shares which represent units of fractional
undivided beneficial interest in and ownership of the Trust. The
investment objective of the Trust is for the Shares to reflect the
performance of the price of palladium, less the expenses of the Trust's
operations.\9\ ETFS Services USA LLC is the sponsor of the Trust
(``Sponsor''), The Bank of New York Mellon is the trustee of the Trust
(``Trustee'') \10\, and HSBC Bank USA, N.A. is the custodian of the
Trust (``Custodian'').\11\
---------------------------------------------------------------------------

\9\ See Amendment No. 2 to the Registration Statement for the
ETFS Palladium Trust on Form S-1, filed with the Commission on
October 20, 2009 (No. 333-15830) (``Registration Statement''). The
descriptions of the Trust, the Shares and the palladium market
contained herein are based on the Registration Statement.
\10\ The Trustee is generally responsible for the day-to-day
administration of the Trust, including keeping the Trust's
operational records. The Trustee's principal responsibilities
include (1) transferring the Trust's palladium as needed to pay the
Sponsor's Fee in palladium (palladium transfers are expected to
occur approximately monthly in the ordinary course), (2) valuing the
Trust's palladium and calculating the NAV of the Trust and the NAV
per Share, (3) receiving and processing orders from Authorized
Participants to create and redeem Baskets and coordinating the
processing of such orders with the Custodian and DTC, (4) selling
the Trust's palladium as needed to pay any extraordinary Trust
expenses that are not assumed by the Sponsor, (5) when appropriate,
making distributions of cash or other property to Shareholders, and
(6) receiving and reviewing reports from or on the Custodian's
custody of and transactions in the Trust's palladium.
\11\ The Custodian is responsible for safekeeping for the Trust
palladium deposited with it by Authorized Participants in connection
with the creation of Baskets. The Custodian is also responsible for
selecting the Zurich Sub-Custodians and its other direct sub-
custodians, if any. The Custodian facilitates the transfer of
palladium in and out of the Trust through the unallocated palladium
accounts it will maintain for each Authorized Participant and the
unallocated and allocated palladium accounts it will maintain for
the Trust. The Custodian is responsible for allocating specific
plates or ingots of physical palladium to the Trust's allocated
palladium account. The Custodian will provide the Trustee with
regular reports detailing the palladium transfers in and out of the
Trust's unallocated and allocated palladium accounts and identifying
the palladium plates or ingots held in the Trust's allocated
palladium account.
---------------------------------------------------------------------------

The Exchange represents that the Shares satisfy the requirements of
NYSE Arca Equities Rule 8.201 and thereby qualify for listing on the
Exchange.\12\
---------------------------------------------------------------------------

\12\ With respect to application of Rule 10A-3 (17 CFR 240.10A-
3) under the Securities Exchange of 1934 (``Act'') (15 U.S.C. 78a),
the Trust relies on the exemption contained in Rule 10A-3(c)(7).
---------------------------------------------------------------------------

The investment objective of the Trust is for the Shares to reflect
the performance of the price of physical palladium, less the Trust's
expenses. The Shares are intended to constitute a simple and cost-
effective means of making an investment similar to an investment in
palladium. An investment in physical palladium requires expensive and
sometimes complicated arrangements in connection with the assay,
transportation, warehousing and insurance of the metal. Although the
Shares will not be the exact equivalent of an investment in palladium,
they provide investors with an alternative that allows a level of
participation in the palladium market through the securities market.
Platinum Group Metals
Platinum and palladium are the two best known metals of the six
platinum group metals (PGMs). Platinum and palladium have the greatest
economic importance and are found in the largest quantities. The other
four--iridium, rhodium, ruthenium and osmium--are produced only as co-
products of platinum and palladium.
PGMs are found primarily in South Africa and Russia. Russia is the
largest producer of palladium and most production is concentrated in
the Norilsk region. South Africa is the world's leading platinum
producer and the second largest palladium producer. All of South
Africa's production is sourced from the Bushveld Igneous Complex, which
hosts the world's largest resource of PGMs. Together, South Africa and
Russia accounted for 78% of total platinum group metals supply in 2008.
Suppliers of Palladium
The main supplier of palladium is Russia. However, its contribution
has fallen from 65% in 1999 to 44% of total supply in 2008. South
Africa is the second largest source of supply, accounting for 29% of
total supply in 2008. Similar to platinum, Russia's contribution to
palladium supply has been variable while South Africa has consistently
increased over the past ten years. North America contributes
approximately 11% to supply while the recovery of palladium from
autocatalysts has increased more than five-fold over the past ten years
to account for 13% of supply in 2008.
Demand for Palladium
Autocatalysts are the largest component of palladium demand, with
total demand increasing to 55% of total supply by the end of 2008.
Industrial demand (electronics, dentistry, and chemical) has fallen to
a low of 23% of total demand in 2001 to 28% of total demand in 2008.
Jewelry demand for palladium has increased by the largest of all the
key sectors, rising by 232% over the past ten years and contributing a
total of 9% of total demand in 2008.\13\
---------------------------------------------------------------------------

\13\ The Registration Statement includes a table with data
regarding World Palladium Supply and demand 1999-2008. According to
the Registration Statement, the table illustrates that the palladium
supply over the past ten years has averaged 8.1 million ounces with
the majority of production from Russia. Production from Russia, on
average accounts for approximately 50% of total production from 1999
to 2008. There is a 24% increase in palladium supply when comparing
the average five-year periods ended 2003 and 2008, at 7.3 million
ounces and 9.0 million ounces, respectively. The biggest source of
demand for palladium output over the period shown has come from the
autocatalyst sector which has accounted for an approximate average
of 58% of all demand from 1999 to 2008. However, autocatalyst demand
has decreased in 2008 from its 2001 peak of 72% of total demand to
55% by 2008. The annual demand for palladium over the past 10 years
has averaged approximately 7.5 million ounces.
---------------------------------------------------------------------------

The investment sector for palladium includes the investment and
trading activities of both professional and private investors and
speculators. These participants range from large hedge and mutual funds
to day-traders on futures exchanges, and retail-level coin collectors.
The fabrication and manufacturing sector for palladium represents all
the commercial and industrial users of palladium for whom palladium is
a daily part of their business. The auto catalyst and jewelry
industries are the largest users of palladium.
Physical palladium prices performed strongly in early 2008, rising
from an opening $370 to a peak of $588 in March--the highest prices
since 2001. However, speculative fund interests in the palladium market
were amply demonstrated in the third quarter as large fund sales sent
the price of physical palladium spiraling to only $199 per ounce at the
close of the quarter, the lowest price since October 2005. Prices
continued at these low levels as the price of palladium ended

[[Page 59285]]

the year at $184 per ounce in December 2008.
Operation of the Palladium Market
The global trade in palladium consists of Over-the-Counter (OTC)
transactions in spot, forwards, and options and other derivatives,
together with exchange-traded futures and options. The OTC market
trades on a 24-hour per day continuous basis and accounts for most
global palladium trading.
Market makers, as well as others in the OTC market, trade with each
other and with their clients on a principal-to-principal basis. All
risks and issues of credit are between the parties directly involved in
the transaction. Market makers include the market-making members of the
The London Platinum Palladium Market (``LPPM''), the trade association
that acts as the coordinator for activities conducted on behalf of its
members and other participants in the LPPM. The four market-making
members of the LPPM are: J.Aron & Company (a division of Goldman Sachs
International), Engelhard Metals Limited, HSBC Bank USA, N.A. (through
its London branch), and Standard Bank. The OTC market provides a
relatively flexible market in terms of quotes, price, size,
destinations for delivery and other factors. Bullion dealers customize
transactions to meet clients' requirements. The OTC market has no
formal structure and no open-outcry meeting place.
According to the Registration Statement, the main centers of the
OTC market are London, New York, Hong Kong and Zurich. Mining
companies, manufacturers of jewelry and industrial products, together
with investors and speculators, tend to transact their business through
one of these market centers. Centers such as Dubai and several cities
in the Far East also transact substantial OTC market business,
typically involving jewelry and small plates or ingots (1 kilogram or
less) and will hedge their exposure by selling into one of these main
OTC centers. Precious metals dealers have offices around the world and
most of the world's major bullion dealers are either members or
associate members of the London Bullion Market Association and/or the
LPPM. In the OTC market, the standard size of palladium trades between
market makers is 1,000 ounces.
Liquidity in the OTC market can vary from time to time during the
course of the 24-hour trading day. Fluctuations in liquidity are
reflected in adjustments to dealing spreads--the differential between a
dealer's ``buy'' and ``sell'' prices. The period of greatest liquidity
in the palladium market generally occurs at the time of day when
trading in the European time zones overlaps with trading in the United
States, which is when OTC market trading in London, New York and other
centers coincides with futures and options trading on the NYMEX. This
period lasts for approximately four hours each New York business day
morning.
The London Palladium Market
Although the market for physical palladium is distributed globally,
most OTC market trades are cleared through London. In addition to
coordinating market activities, the LPPM acts as the principal point of
contact between the market and its regulators. A primary function of
the LPPM is its involvement in the promotion of refining standards by
maintenance of the ``London/Zurich Good Delivery Lists,'' which are the
lists of LPPM accredited melters and assayers of palladium.\14\ The
LPPM also coordinates market clearing and vaulting, promotes good
trading practices and develops standard documentation.
---------------------------------------------------------------------------

\14\ Terms relating to the Trust and the Shares referred to, but
not defined, herein are defined in the Registration Statement.
---------------------------------------------------------------------------

Palladium is traded generally on a loco Zurich basis, meaning the
precious metal is physically held in vaults in Zurich or is transferred
into accounts established in Zurich. The basis for settlement and
delivery of a loco Zurich spot trade is payment (generally in U.S.
dollars) two business days after the trade date against delivery.
Delivery of the palladium can either be by physical delivery or through
the clearing systems to an unallocated account.
The unit of trade in London is the troy ounce, whose conversion
between grams is: 1,000 grams is equivalent to 32.1507465 troy ounces,
and one troy ounce is equivalent to 31.1034768 grams. A London/Zurich
good delivery plate or ingot is acceptable for delivery in settlement
of a transaction on the OTC market. Typically referred to as Good
Delivery, a plate or ingot must contain between 32 and 192 troy ounces
of palladium with a minimum fineness (or purity) of 999.5 parts per
1,000 (99.95%), be of good appearance, and be easy to handle and stack.
The palladium content of a palladium plate or ingot is calculated by
multiplying the gross weight (expressed in units of 0.025 troy ounces)
by the fineness of the plate or ingot. A Good Delivery plate or ingot
must also bear the stamp of one of the melters and assayers who are on
the LPPM approved list. Unless otherwise specified, the palladium spot
price always refers to that of Good Delivery Standards. Business is
generally conducted over the phone and through electronic dealing
systems.
Twice daily during London trading hours there is a fix which
provides reference palladium prices for that day's trading. Many long-
term contracts will be priced on the basis of either the morning (a.m.)
or afternoon (p.m.) London fix, and market participants will usually
refer to one or the other of these prices when looking for a basis for
valuations. The London fix is the most widely used benchmark for daily
palladium prices and is quoted by various financial information
sources.
Formal participation in the London fix is traditionally limited to
four members, each of which is a bullion dealer and a member of the
LPPM. The chairmanship now rotates annually among the four member
firms. The morning session of the fix starts at 9:45 a.m. London time
and the afternoon session starts at 2 p.m. London time. The members of
the LPPM fixing are currently: J.Aron & Company (a division of Goldman
Sachs International), Engelhard Metals Limited, HSBC Bank USA N.A.
(London branch), and Standard Bank London Limited. Any other market
participant wishing to participate in the trading on the fix is
required to do so through one of the four palladium fixing members.
Orders are placed either with one of the four fixing members or
with another precious metals dealer who will then be in contact with a
fixing member during the fixing. The fixing members net-off all orders
when communicating their net interest at the fixing. The fix begins
with the fixing chairman suggesting a ``trying price,'' reflecting the
market price prevailing at the opening of the fix. This is relayed by
the fixing members to their dealing rooms which have direct
communication with all interested parties. Any market participant may
enter the fixing process at any time, or adjust or withdraw his order.
The palladium price is adjusted up or down until all the buy and sell
orders are matched, at which time the price is declared fixed. All
fixing orders are transacted on the basis of this fixed price, which is
instantly relayed to the market through various media. The London fix
is widely viewed as a full and fair representation of all market
interest at the time of the fix.
Futures Exchanges
The most significant palladium futures exchanges are the NYMEX and
the Tokyo Commodity Exchange (``TOCOM''). The NYMEX is the largest
exchange in the world for trading precious metals futures and options
and

[[Page 59286]]

has been trading palladium since 1974. The TOCOM has been trading
palladium since 1982. Trading on these exchanges is based on fixed
delivery dates and transaction sizes for the futures and options
contracts traded. The NYMEX operates through a central clearance
system. On June 6, 2003, TOCOM adopted a similar clearance system. In
each case, the exchange acts as a counterparty for each member for
clearing purposes.
Market Regulation
The global palladium markets are overseen and regulated by both
governmental and self-regulatory organizations. In addition, certain
trade associations have established rules and protocols for market
practices and participants. In the United Kingdom, responsibility for
the regulation of the financial market participants, including the
major participating members of the LPPM, falls under the authority of
the Financial Services Authority (``FSA'') as provided by the Financial
Services and Markets Act 2000 (``FSM Act''). Under this act, all UK-
based banks, together with other investment firms, are subject to a
range of requirements, including fitness and properness, capital
adequacy, liquidity, and systems and controls.
The FSA is responsible for regulating investment products,
including derivatives, and those who deal in investment products.
Regulation of spot, commercial forwards, and deposits of palladium not
covered by the FSM Act is provided for by The London Code of Conduct
for Non-Investment Products, which was established by market
participants in conjunction with the Bank of England.
The TOCOM has authority to perform financial and operational
surveillance on its members' trading activities, scrutinize positions
held by members and large-scale customers, and monitor the price
movements of futures markets by comparing them with cash and other
derivative markets' prices. To act as a Futures Commission Merchant
Broker, a broker must obtain a license from Japan's Ministry of
Economy, Trade and Industry (METI), the regulatory authority that
oversees the operations of the TOCOM.
The Trust will not trade in palladium futures contracts on the
NYMEX or on any other futures exchange. The Trust will only take
delivery of physical palladium that complies with the NYMEX palladium
delivery rules or the LPPM palladium delivery rules. Because the Trust
will not trade in palladium futures contracts on any futures exchange,
the Trust with not be regulated by the Commodity Futures Trading
Commission (``CFTC'') under the Commodity Exchange Act \15\ (``CEA'')
as a ``commodity pool,'' and will not be operated by a CFTC-regulated
commodity pool operator.
---------------------------------------------------------------------------

\15\ 7 U.S.C. 1 et seq.
---------------------------------------------------------------------------

Custody of the Trust's Palladium
Custody of the physical palladium deposited with and held by the
Trust will be provided by the Custodian at its London, England vaults,
by Zurich Sub-Custodians selected by the Custodian in their Zurich
vaults and by other sub-custodians on a temporary basis only. The
Custodian is a market maker, clearer and approved weigher under the
rules of the LPPM. The Custodian is the custodian of the physical
palladium credited to Trust Allocated Account in accordance with the
Custody Agreements. The Custodian will segregate the physical palladium
credited to the Trust Allocated Account from any other precious metal
it holds or holds for others by entering appropriate entries in its
books and records, and will require any Zurich Sub-Custodian it
appoints to also segregate the physical palladium of the Trust from the
other palladium held by them for other customers of the Custodian and
the Zurich Sub-Custodian's other customers. The Custodian will require
any Zurich Sub-Custodian it appoints to identify in such Zurich Sub-
Custodian's books and records the Trust as having the rights to the
physical palladium credited to its Trust Allocated Account.
The Custodian, as instructed by the Trustee, is authorized to
accept, on behalf of the Trust, deposits of palladium in unallocated
form. Acting on standing instructions specified in the Custody
Agreements, the Custodian will or will require a Zurich Sub-Custodian
to allocate palladium deposited in unallocated form with the Trust by
selecting plates or ingots of physical palladium for deposit to the
Trust Allocated Account. All physical palladium allocated to the Trust
must conform to the rules, regulations, practices and customs of the
LPPM.
The process of withdrawing palladium from the Trust for a
redemption of a Basket will follow the same general procedure as for
depositing palladium with the Trust for a creation of a Basket, only in
reverse. Each transfer of palladium between the Trust Allocated Account
and the Trust Unallocated Account connected with a creation or
redemption of a Basket may result in a small amount of palladium being
held in the Trust Unallocated Account after the completion of the
transfer. In making deposits and withdrawals between the Trust
Allocated Account and the Trust Unallocated Account, the Custodian will
use commercially reasonable efforts to minimize the amount of palladium
held in the Trust Unallocated Account as of the close of each business
day.
According to the Registration Statement, the Trust is not
registered as an investment company under the Investment Company Act of
1940 \16\ and is not required to register under such act. The Trust
will not hold or trade in commodity futures contracts regulated by the
CEA, as administered by the CFTC. The Trust is not a commodity pool for
purposes of the CEA, and neither the Sponsor nor the Trustee is subject
to regulation by the CFTC as a commodity pool operator or a commodity
trading advisor in connection with the Shares.
---------------------------------------------------------------------------

\16\ 15 U.S.C. 80a.
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Sponsor's Estimate of Expected Size of the Trust
The Sponsor has made representations to the Commission regarding
the expected size of the Trust and the expected impact of the offering
of the Shares on the global palladium market.\17\ In the May 15, 2009
Letter, the Sponsor has stated its expectation that the Trust's assets
under management (``AUM'') would be between $100 million and $200
million after three years of the Trust's operation, and using the
palladium spot market price of $242.00 per ounce as of May 8, 2009, the
Trust would be expected to be acquiring between approximately 138,000
to 275,000 ounces of palladium on an annual basis.\18\ The Sponsor has
represented that it does not believe that the currently expected size
of the Trust will have a meaningful effect on the global supply or
demand for palladium, and that the Trust's highest forecast palladium
acquisitions would represent 3.4% and 3.6%, respectively, of the 10-
year average annual supply and demand for palladium through the end of
2008.\19\ The Sponsor, therefore, has stated its belief that, in view
of the amount of Shares sought to be registered, the Trust believes
there will be a market neutral impact given that the Shares can be a

[[Page 59287]]

current source of supply at then current prices through
redemptions.\20\
---------------------------------------------------------------------------

\17\ See Supplemental Comment Response regarding the Trust,
dated May 15, 2009, from Peter J. Shea, Katten Muchin Rosenman LLP,
to the Commission (submitted via EDGAR) (``May 15, 2009 Letter'').
\18\ The Exchange notes that ETF Securities Ltd., the Sponsor's
parent entity, has sponsored ETFS Palladium ETP, traded on the
London Stock Exchange (ticker symbol: PHPD), which had AUM of
approximately $61.4 million as of May 8, 2009.
\19\ See note 13, supra.
\20\ The Sponsor states that it intends to recast its analysis
each time it seeks to register additional Shares of the Trust in the
future to ensure that additional Trust offerings will not be
disruptive to palladium supply and demand. May 15, 2009 Letter at p.
4. As stated in the May 15, 2009 Letter, the Registration Statement
seeks to register 12,880,000 Shares, and that, at an estimated
palladium acquisition rate of 275,000 ounces per year, the Trust
would complete its Share offering in approximately 4.7 years.
---------------------------------------------------------------------------

In the May 15, 2009 Letter, the Sponsor also states that it expects
that the offering of the Shares will not have a meaningful impact on
the global palladium market, founded on the Sponsor's belief that the
present Share offering is limited to an appropriate size and that
arbitrage opportunities between palladium market prices and the Trust's
net asset value together with the low cost creation and redemption
process utilizing physical metal will neutralize any impact of the
Trust on the broader palladium market.\21\
---------------------------------------------------------------------------

\21\ May 15, 2009 Letter at p. 5.
---------------------------------------------------------------------------

According to the Registration Statement, since there is no limit on
the amount of palladium that the Trust may acquire, the Trust, as it
grows, may have an impact on the supply and demand of palladium that
ultimately may affect the price of the Shares in a manner unrelated to
other factors affecting the global market for palladium.
Secondary Market Trading
While the Trust's investment objective is for the Shares to reflect
the performance of palladium, less the expenses of the Trust, the
Shares may trade in the secondary market on the NYSE Arca at prices
that are lower or higher relative to their net asset value (``NAV'')
per Share. The amount of the discount or premium in the trading price
relative to the NAV per Share may be influenced by non-concurrent
trading hours between the NYSE Arca and the NYMEX and London. While the
Shares will trade on the NYSE Arca until 8 p.m. New York time,
liquidity in the global palladium market will be reduced after the
close of the NYMEX at 1 p.m. New York time. As a result, during this
time, trading spreads, and the resulting premium or discount, on the
Shares may widen.
Trust Expenses
The Trust's only ordinary recurring expense is expected to be equal
to the Sponsor's Fee. In exchange for the Sponsor's Fee, the Sponsor
has agreed to assume the following administrative and marketing
expenses incurred by the Trust: The Trustee's monthly fee and out-of-
pocket expenses, the Custodian's fee, Exchange listing fees, SEC
registration fees, printing and mailing costs, audit fees and up to
$100,000 per annum in legal expenses. The Sponsor will also pay the
costs of the Trust's organization and the initial sale of the Shares,
including the applicable SEC registration fees.
The Sponsor's Fee will accrue daily at an annualized rate equal to
a specified percentage of the adjusted net asset value of the Trust and
will be payable monthly in arrears. The Sponsor, from time to time, may
temporarily waive all or a portion of the Sponsor's Fee at its
discretion for a stated period of time.
The Trust will deliver palladium to the Sponsor to pay the
Sponsor's Fee and sell palladium to raise the funds needed for the
payment of all Trust expenses not assumed by the Sponsor. The purchase
price received as consideration for such sales will be the Trust's sole
source of funds to cover its liabilities. The Trust will not engage in
any activity designed to derive a profit from changes in the price of
palladium.
Creation and Redemption Procedures
The Trust will create and redeem Shares in one or more Baskets (a
Basket equals a block of 50,000 Shares). The creation and redemption of
Baskets will only be made ``in-kind'' in exchange for the delivery to
the Trust or the distribution by the Trust of the amount of palladium
and any cash represented by the Baskets being created or redeemed, the
amount of which will be based on the combined NAV of the number of
Shares included in the Baskets being created or redeemed determined on
the day the order to create or redeem Baskets is properly received. The
creation and redemption of Baskets may occur daily.
Authorized Participants are the only persons that may place orders
to create and redeem Baskets. Authorized Participants must be (1)
registered broker-dealers or other securities market participants, such
as banks and other financial institutions that are exempt from
registration as broker-dealers to engage in securities transactions and
(2) participants in DTC. To become an Authorized Participant, a person
must enter into an Authorized Participant Agreement with the Sponsor
and the Trustee. The Authorized Participant Agreement provides the
procedures for the creation and redemption of Baskets and for the
delivery of the palladium and any cash required for such creations and
redemptions.
According to the Registration Statement, certain Authorized
Participants are expected to have the facility to participate directly
in the physical palladium market and the palladium futures market. In
some cases, an Authorized Participant may from time to time acquire
palladium from or sell palladium to its affiliated palladium trading
desk, which may profit in these instances. Certain Authorized
Participants will be regulated under federal and state banking laws and
regulations. Each Authorized Participant will have its own set of rules
and procedures, internal controls and information barriers as it
determines is appropriate in light of its own regulatory regime.
Shareholders who are not Authorized Participants will only be able to
redeem their shares by an Authorized Participant.
All palladium will be delivered to the Trust and distributed by the
Trust in unallocated form through credits and debits between Authorized
Participant Unallocated Accounts and the Trust Unallocated Account.
Palladium transferred from an Authorized Participant Unallocated
Account to the Trust in unallocated form will first be credited to the
Trust Unallocated Account. Thereafter, the Custodian will allocate
specific plates or ingots of palladium representing the amount of
palladium credited to the Trust Unallocated Account (to the extent such
amount is representable by whole palladium plates or ingots) to the
Trust Allocated Account. The movement of palladium is reversed for the
distribution of palladium to an Authorized Participant in connection
with the redemption of Baskets.
All physical palladium represented by a credit to any Authorized
Participant Unallocated Account and to the Trust Unallocated Account
and all physical palladium held in the Trust Allocated Account with the
Custodian must be of at least a minimum fineness (or purity) of 999.5
parts per 1,000 (99.95%) and otherwise conform to the rules,
regulations practices and customs of the LPPM, including the
specifications for a Good Delivery plate or ingot.
Creation Procedures
On any business day, an Authorized Participant may place an order
with the Trustee to create one or more Baskets. Creation and redemption
orders will be accepted on ``business days'' when the NYSE Arca is open
for regular trading. Settlements of such orders requiring receipt or
delivery, or confirmation of receipt or delivery, of palladium in the
United Kingdom, Zurich or another jurisdiction will occur on ``business
days'' when (1) banks in the United Kingdom, Zurich or such other
jurisdiction and (2) the London/Zurich

[[Page 59288]]

or such other palladium markets are regularly open for business. If
such banks or the London/Zurich palladium markets are not open for
regular business for a full day, such a day will only be a ``business
day'' for settlement purposes if the settlement procedures can be
completed by the end of such day. Settlement of palladium deliveries,
which occur loco Zurich, may be delayed for longer than three business
days. Settlement of orders requiring receipt or delivery, or
confirmation of receipt or delivery, of Shares will occur, after
confirmation of the applicable palladium delivery, on ``business days''
when the NYSE Arca is open for regular trading. Purchase orders must be
placed by 4 p.m. or the close of regular trading on the NYSE Arca,
whichever is earlier. The day on which the Trustee receives a valid
purchase order is the purchase order date.
By placing a purchase order, an Authorized Participant agrees to
deposit palladium with the Trust, or a combination of palladium and
cash, as described below. Prior to the delivery of Baskets for a
purchase order, the Authorized Participant must also have wired to the
Trustee the non-refundable transaction fee due for the purchase order.
Determination of Required Deposits
The total deposit required to create each Basket (Creation Basket
Deposit) will be an amount of palladium and cash, if any, that is in
the same proportion to the total assets of the Trust (net of estimated
accrued but unpaid fees, expenses and other liabilities) on the date
the order to purchase is properly received as the number of Shares to
be created under the purchase order is in proportion to the total
number of Shares outstanding on the date the order is received. The
Sponsor anticipates that in the ordinary course of the Trust's
operations a cash deposit will not be required for the creation of
Baskets.
The amount of the required palladium deposit is determined by
dividing the number of ounces of palladium held by the Trust by the
number of Baskets outstanding, as adjusted for estimated accrued but
unpaid fees and expenses as described in the next paragraph.
The amount of any required cash deposit is determined as follows.
The estimated unpaid fees, expenses and liabilities of the Trust
accrued through the purchase order date are subtracted from any cash
held or receivable by the Trust as of the purchase order date. The
remaining amount is divided by the number of Shares outstanding
immediately before the purchase order date and then multiplied by the
number of Shares being created pursuant to the purchase order. If the
resulting amount is positive, this amount is the required cash deposit.
If the resulting amount is negative, the amount of the required
palladium deposit will be reduced by the number of fine ounces of
palladium equal in value to that resulting amount, determined at the
price of palladium used in calculating the NAV of the Trust on the
purchase order date. Fractions of a fine ounce of palladium smaller
than 0.001 of a fine ounce which are included in the palladium deposit
amount are disregarded. All questions as to the composition of a
Creation Basket Deposit will be finally determined by the Trustee. The
Trustee's determination of the Creation Basket Deposit shall be final
and binding on all persons interested in the Trust.
Delivery of Required Deposits
An Authorized Participant who places a purchase order is
responsible for crediting its Authorized Participant Unallocated
Account with the required palladium deposit amount by the third
business day in Zurich following the purchase order date. Upon receipt
of the palladium deposit amount, the Custodian, after receiving
appropriate instructions from the Authorized Participant and the
Trustee, will transfer on the third business day following the purchase
order date the palladium deposit amount from the Authorized Participant
Unallocated Account to the Trust Unallocated Account and the Trustee
will direct DTC to credit the number of Baskets ordered to the
Authorized Participant's DTC account.
Acting on standing instructions given by the Trustee, the Custodian
will transfer the palladium deposit amount from the Trust Unallocated
Account to the Trust Allocated Account by transferring palladium plates
and ingots from its inventory to the Trust Allocated Account. The
Custodian will use commercially reasonable efforts to complete the
transfer of palladium to the Trust Allocated Account prior to the time
by which the Trustee is to credit the Basket to the Authorized
Participant's DTC account; if, however, such transfers have not been
completed by such time, the number of Baskets ordered will be delivered
against receipt of the palladium deposit amount in the Trust
Unallocated Account, and all Shareholders will be exposed to the risks
of unallocated palladium to the extent of that palladium deposit amount
until the Custodian completes the allocation process.
The Trustee may reject a purchase order or a Creation Basket
Deposit if such order or Creation Basket Deposit if [sic] not presented
in proper form as described in the Authorized Participant Agreement or
if the fulfillment of the order, in the opinion of counsel, might be
unlawful.
Redemption Procedures
According to the Registration Statement, the procedures by which an
Authorized Participant can redeem one or more Baskets will mirror the
procedures for the creation of Baskets. On any business day, an
Authorized Participant may place an order with the Trustee to redeem
one or more Baskets. Redemption orders must be placed by 4 p.m. or the
close of regular trading on the NYSE Arca, whichever is earlier. A
redemption order so received is effective on the date it is received in
satisfactory form by the Trustee. The redemption procedures allow
Authorized Participants to redeem Baskets and do not entitle an
individual Shareholder to redeem any Shares in an amount less than a
Basket, or to redeem Baskets other than through an Authorized
Participant.
By placing a redemption order, an Authorized Participant agrees to
deliver the Baskets to be redeemed through DTC's book-entry system to
the Trust not later than the third business day following the effective
date of the redemption order. Prior to the delivery of the redemption
distribution for a redemption order, the Authorized Participant must
also have wired to the Trustee the non-refundable transaction fee due
for the redemption order.
Determination of Redemption Distribution
The redemption distribution from the Trust will consist of (1) a
credit to the redeeming Authorized Participant's Authorized Participant
Unallocated Account representing the amount of the palladium held by
the Trust evidenced by the Shares being redeemed plus or minus (2) the
cash redemption amount. The cash redemption amount is equal to the
value of all assets of the Trust other than palladium less all
estimated accrued but unpaid expenses and other liabilities, divided by
the number of Baskets outstanding and multiplied by the number of
Baskets included in the Authorized Participant's redemption order. The
Trustee will distribute any positive cash redemption amount through DTC
to the account of the Authorized Participant as recorded on DTC's book
entry system. If the cash redemption amount is negative, the credit to
the Authorized Participant

[[Page 59289]]

Unallocated Account will be reduced by the number of ounces of
palladium equal in value to the negative cash redemption amount,
determined at the price of palladium used in calculating the NAV of the
Trust on the redemption order date. The Sponsor anticipates that in the
ordinary course of the Trust's operations there will be no cash
distributions made to Authorized Participants upon redemptions.
Fractions of a fine ounce of palladium included in the redemption
distribution smaller than 0.001 of a fine ounce are disregarded.
Redemption distributions will be subject to the deduction of any
applicable tax or other governmental charges which may be due.
Delivery of Redemption Distribution
The redemption distribution due from the Trust will be delivered to
the Authorized Participant on the third business day following the
redemption order date if, by 9 a.m. New York time on such third
business day, the Trustee's DTC account has been credited with the
Baskets to be redeemed. Terms relating to the Trust and the Shares
referred to, but not defined, herein are defined in the Registration
Statement.
The Custodian will transfer the redemption palladium amount from
the Trust Allocated Account to the Trust Unallocated Account and,
thereafter, to the redeeming Authorized Participant's Authorized
Participant Unallocated Account.
The Trustee may, in its discretion, and will when directed by the
Sponsor, suspend the right of redemption, or postpone the redemption
settlement date, (1) for any period during which the NYSE Arca is
closed other than customary weekend or holiday closings, or trading on
the NYSE Arca is suspended or restricted or (2) for any period during
which an emergency exists as a result of which delivery, disposal or
evaluation of palladium is not reasonably practicable.
The Trustee will reject a redemption order if the order is not in
proper form as described in the Authorized Participant Agreement or if
the fulfillment of the order, in the opinion of its counsel, might be
unlawful.
Creation and Redemption Transaction Fee
To defray the costs incurred by the Trustee in providing services
for processing the creation and redemption of Baskets, an Authorized
Participant will be required to pay a transaction fee to the Trustee of
$500 per order to create or redeem Baskets. An order may include
multiple Baskets. The transaction fee may be reduced, increased or
otherwise changed by the Trustee with the consent of the Sponsor. The
Trustee shall notify DTC of any agreement to change the transaction fee
and will not implement any increase in the fee for the redemption of
Baskets until 30 days after the date of the notice.
Additional information regarding the Shares and the operation of
the Trust, including termination events, risks, and creation and
redemption procedures, are described in the Registration Statement.
Termination Events
The Trustee will terminate and liquidate the Trust if the aggregate
market capitalization of the Trust, based on the closing price for the
Shares, was less than $350 million (as adjusted for inflation) at any
time after the first anniversary after the Trust's formation and the
Trustee receives, within six months after the last of those trading
days, notice from the Sponsor of its decision to terminate the Trust.
The Trustee will terminate the Trust if the CFTC determines that the
Trust is a commodities pool under the CEA. The Trustee may also
terminate the Trust upon the agreement of the owners of beneficial
interests in the Shares (``Shareholders'') owning at least 75% of the
outstanding Shares.
The Trust expects to create and redeem the Shares from time to
time, but only in one or more Baskets (a Basket equals a block of
50,000 Shares). The creation and redemption of Baskets requires the
delivery to the Trust or the distribution by the Trust of the amount of
palladium and any cash represented by the Baskets being created or
redeemed, the amount of which will be based on the combined NAV of the
number of Shares included in the Baskets being created or redeemed. The
initial amount of palladium required for deposit with the Trust to
create Shares is 5,000 ounces per Basket. The number of ounces of
palladium required to create a Basket or to be delivered upon the
redemption of a Basket will gradually decrease over time, due to the
accrual of the Trust's expenses and the sale or delivery of the Trust's
palladium to pay the Trust's expenses. Baskets may be created or
redeemed only by Authorized Participants, who will pay a transaction
fee for each order to create or redeem Baskets and may sell the Shares
included in the Baskets they create to other investors.
Additional information regarding the Shares and the operation of
the Trust, including termination events, risks, and creation and
redemption procedures, are described in the Registration Statement.
Valuation of Palladium, Definition of Net Asset Value and Adjusted Net
Asset Value (``ANAV'')
As of the London p.m. Fix on each day that the NYSE Arca is open
for regular trading or, if there is no London p.m. Fix on such day or
the London p.m. Fix has not been announced by 12 noon New York time on
such day, as of 12 noon New York time on such day (Evaluation Time),
the Trustee will evaluate the palladium held by the Trust and determine
both the ANAV and the NAV of the Trust.
At the Evaluation Time, the Trustee will value the Trust's
palladium on the basis of that day's London p.m. Fix or, if no London
p.m. Fix is made on such day or has not been announced by the
Evaluation Time, the next most recent London palladium price fix (a.m.
or p.m.) determined prior to the Evaluation Time will be used, unless
the Sponsor determines that such price is inappropriate as a basis for
evaluation. In the event the Sponsor determines that the London p.m.
Fix or such other publicly available price as the Sponsor may deem
fairly represents the commercial value of the Trust's palladium is not
an appropriate basis for evaluation of the Trust's palladium, it shall
identify an alternative basis for such evaluation to be employed by the
Trustee. Neither the Trustee nor the Sponsor shall be liable to any
person for the determination that the London p.m. Fix or last prior
London palladium price fix is not appropriate as a basis for evaluation
of the Trust's palladium or for any determination as to the alternative
basis for such evaluation provided that such determination is made in
good faith.\22\
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\22\ The Exchange, pursuant to NYSE Arca Equities Rule 7.12, has
the discretion to halt trading in the Shares if the London Fix is
not determined or available for an extended period based on
extraordinary circumstances or market conditions.
---------------------------------------------------------------------------

Once the value of the palladium has been determined, the Trustee
will subtract all estimated accrued but unpaid fees, expenses and other
liabilities of the Trust from the total value of the palladium and all
other assets of the Trust (other than any amounts credited to the
Trust's reserve account, if established). The resulting figure is the
ANAV of the Trust. The ANAV of the Trust is used to compute the
Sponsor's Fee.
To determine the Trust's NAV, the Trustee will subtract the amount
of estimated accrued but unpaid fees computed by reference to the ANAV
of the Trust and to the value of the palladium held by the Trust from
the ANAV of the Trust. The resulting figure

[[Page 59290]]

is the NAV of the Trust. The Trustee will also determine the NAV per
Share by dividing the NAV of the Trust by the number of the Shares
outstanding as of the close of trading on the NYSE Arca (which includes
the net number of any Shares created or redeemed on such evaluation
day).
The NAV of the Trust is the aggregate value of the Trust's assets
less its liabilities (which include estimated accrued but unpaid fees
and expenses). In determining the NAV of the Trust, the Trustee will
value the palladium held by the Trust on the basis of the price of an
ounce of palladium as set by the afternoon session of the twice daily
fix of the price of an ounce of palladium which starts at 2 p.m.
London, England time (London p.m. Fix) and is performed by the four
members of the London Platinum and Palladium Market (LPPM). The Trustee
will determine the NAV of the Trust on each day the NYSE Arca is open
for regular trading, at the earlier of the London p.m. Fix for the day
or 12 noon New York time. If no London p.m. Fix is made on a particular
evaluation day or has not been announced by 12 noon New York time on a
particular evaluation day, the next most recent London palladium price
fix (a.m. or p.m.) will be used in the determination of the NAV of the
Trust, unless the Sponsor determines that such price is inappropriate
to use as basis for such determination. The Trustee will also determine
the NAV per Share, which equals the NAV of the Trust, divided by the
number of outstanding Shares.
The Shares will be book-entry only and individual certificates will
not be issued for the Shares.
Liquidity
The Shares may trade at, above or below the NAV per Share. The NAV
per Share will fluctuate with changes in the market value of the
Trust's assets. The trading price of the Shares will fluctuate in
accordance with changes in the NAV per Share as well as market supply
and demand. The amount of the discount or premium in the trading price
relative to the NAV per Share may be influenced by non-concurrent
trading hours between the NYSE Arca and the major palladium markets.
While the Shares will trade on the NYSE Arca until 8 p.m. New York
time, liquidity in the market for palladium will be reduced after the
close of the major world palladium markets, including London and the
NYMEX. As a result, during this time, trading spreads, and the
resulting premium or discount, on the Shares may widen.
Availability of Information Regarding Palladium Prices
Currently, the Consolidated Tape Plan does not provide for
dissemination of the spot price of a commodity, such as palladium, over
the Consolidated Tape. However, there will be disseminated over the
Consolidated Tape the last sale price for the Shares, as is the case
for all equity securities traded on the Exchange (including exchange-
traded funds). In addition, there is a considerable amount of palladium
price and palladium market information available on public Web sites
and through professional and subscription services.
Investors may obtain on a 24-hour basis palladium pricing
information based on the spot price for an ounce of palladium from
various financial information service providers, such as Reuters and
Bloomberg. Reuters and Bloomberg provide at no charge on their Web
sites delayed information regarding the spot price of palladium and
last sale prices of palladium futures, as well as information about
news and developments in the palladium market. Reuters and Bloomberg
also offer a professional service to subscribers for a fee that
provides information on palladium prices directly from market
participants. An organization named EBS provides an electronic trading
platform to institutions such as bullion banks and dealers for the
trading of spot palladium, as well as a feed of live streaming prices
to Reuters and Moneyline Telerate subscribers. Complete real-time data
for palladium futures and options prices traded on the NYMEX are
available by subscription from Reuters and Bloomberg. The NYMEX also
provides delayed futures and options information on current and past
trading sessions and market news free of charge on its Web site. There
are a variety of other public Web sites providing information on
palladium, ranging from those specializing in precious metals to sites
maintained by major newspapers, such as The Wall Street Journal. In
addition, the London a.m. Fix and London p.m. Fix are publicly
available at no charge at https://www.lbma.org.uk/statistics_current.htm or https://www.thebulliondesk.com.
The Trust Web site will provide an intraday indicative value
(``IIV'') per share for the Shares, updated at least every 15 seconds,
as calculated by the Exchange or a third party financial data provider,
during the Exchange's Core Trading Session (9:30 a.m. to 4 p.m., New
York time). The IIV is calculated by multiplying the indicative spot
price of palladium by the quantity of palladium backing each Share. The
Trust Web site will also provide the NAV of the Trust as calculated
each business day by the Sponsor. In addition, the Web site for the
Trust will contain the following information, on a per Share basis, for
the Trust: (a) The NAV as of the close of the prior business day and
the mid-point of the bid-ask price \23\ at the close of trading in
relation to such NAV (``Bid/Ask Price''), and a calculation of the
premium or discount of such price against such NAV; and (b) data in
chart format displaying the frequency distribution of discounts and
premiums of the Bid/Ask Price against the NAV, within appropriate
ranges, for each of the four previous calendar quarters. The Web site
for the Trust will also provide the following information: the Creation
Basket Deposit, the Trust's prospectus, and the two most recent reports
to stockholders. Finally, the Trust Web site will also provide the last
sale price of the Shares as traded in the US market. The Exchange will
provide on its Web site (https://www.nyx.com) a link to the Trust's Web
site. In addition, the Exchange will make available over the
Consolidated Tape quotation information, trading volume, closing prices
and NAV for the Shares from the previous day.
---------------------------------------------------------------------------

\23\ The bid-ask price of the Trust is determined using the
highest bid and lowest offer on the Consolidated Tape as of the time
of calculation of the closing day NAV.
---------------------------------------------------------------------------

Criteria for Initial and Continued Listing
The Trust will be subject to the criteria in Rule 8.201(e) for
initial and continued listing of the Shares.\24\
---------------------------------------------------------------------------

\24\ See e-mail from Michael Cavalier, Chief Counsel, NYSE
Euronext, to David Liu, Assistant Director, Christopher W. Chow,
Special Counsel, and Andrew Madar, Special Counsel, Commission,
dated November 9, 2009.
---------------------------------------------------------------------------

A minimum of 100,000 Shares will be required to be outstanding at
the start of trading.\25\ The minimum number of shares required to be
outstanding is comparable to requirements that have been applied to
previously listed shares of the streetTRACKS Gold Trust, the iShares
COMEX Gold Trust, the iShares Silver Trust and exchange-traded funds.
It is anticipated that the initial price of a Share be approximately
$22.00. The Exchange believes that the anticipated minimum number of
Shares outstanding at the start of trading is sufficient to provide
adequate market liquidity.
---------------------------------------------------------------------------

\25\ Id.
---------------------------------------------------------------------------

Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Fund subject to the Exchange's existing rules
governing the trading of

[[Page 59291]]

equity securities. Trading in the Shares on the Exchange will occur in
accordance with NYSE Arca Equities Rule 7.34(a). The Exchange has
appropriate rules to facilitate transactions in the Shares during all
trading sessions. The minimum trading increment for Shares on the
Exchange will be $0.01.
Further, NYSE Arca Equities Rule 8.201 sets forth certain
restrictions on ETP Holders acting as registered Market Makers in the
Shares to facilitate surveillance. Pursuant to NYSE Arca Equities Rule
8.201(h), an ETP Holder acting as a registered Market Maker in the
Shares is required to provide the Exchange with information relating to
its trading in the underlying palladium, related futures or options on
futures, or any other related derivatives. NYSE Arca Equities Rule
8.201(i) prohibits an ETP Holder acting as a registered Market Maker in
the Shares from using any material nonpublic information received from
any person associated with an ETP Holder or employee of such person
regarding trading by such person or employee in the underlying
palladium, related futures or options on futures or any other related
derivative (including the Shares).
As a general matter, the Exchange has regulatory jurisdiction over
its ETP Holders and their associated persons, which include any person
or entity controlling an ETP Holder, as well as a subsidiary or
affiliate of an ETP Holder that is in the securities business. A
subsidiary or affiliate of an ETP Holder that does business only in
commodities or futures contracts would not be subject to Exchange
jurisdiction, but the Exchange could obtain information regarding the
activities of such subsidiary or affiliate through surveillance sharing
agreements with regulatory organizations of which such subsidiary or
affiliate is a member.
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. Trading on the Exchange in the Shares may be
halted because of market conditions or for reasons that, in the view of
the Exchange, make trading in the Shares inadvisable. These may
include: (1) The extent to which conditions in the underlying palladium
market have caused disruptions and/or lack of trading, or (2) whether
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. In addition,
trading in Shares will be subject to trading halts caused by
extraordinary market volatility pursuant to the Exchange's ``circuit
breaker'' rule.\26\
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\26\ See NYSE Arca Equities Rule 7.12.
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Surveillance
The Exchange intends to utilize its existing surveillance
procedures applicable to derivative products (including Commodity-Based
Trust Shares) to monitor trading in the Shares. The Exchange represents
that these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities laws.
The Exchange's current trading surveillance focuses on detecting
securities trading outside their normal patterns. When such situations
are detected, surveillance analysis follows and investigations are
opened, where appropriate, to review the behavior of all relevant
parties for all relevant trading violations. Also, pursuant to NYSE
Arca Equities Rule 8.201(h), the Exchange is able to obtain information
regarding trading in the Shares and the underlying palladium, palladium
futures contracts, options on palladium futures, or any other palladium
derivative, through ETP Holders acting as registered Market Makers, in
connection with such ETP Holders' proprietary or customer trades which
they effect on any relevant market. In addition, the Exchange may
obtain trading information via the Intermarket Surveillance Group
(``ISG'') from other exchanges who are members of the ISG.\27\ NYMEX is
an ISG member.
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\27\ A list of ISG members is available at https://
www.isgportal.org. The Exchange notes that TOCOM is not an ISG
member and the Exchange does not have in place a comprehensive
surveillance sharing agreement with such market. In addition, the
Exchange does not have acces

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